Center for American Progress

The Impending Health Care Crisis for Early Retirees
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The Impending Health Care Crisis for Early Retirees

New strategies are needed to share the burden of health care for pre-Medicare retirees.

Employers have historically provided health insurance coverage for people who retire prior to turning age 65 and accessing Medicare. However, this coverage is declining rapidly. The cost of health care for 55- to 64-year-old workers is 2.7 times the cost of health care for 20- to 54-year-old workers, making it harder for them to access other sources of insurance.

This raises critical questions: Can employers continue to provide this coverage? Should early retirees have access to Medicare? Should policy even focus on this demographic group or advocate broader reform? Ultimately, who should bear the burden of risk for early retiree health care?

These questions and others were addressed by a panel moderated by Jeanne Lambrew, Senior Fellow at the Center for American Progress, that included Larry Cohen, President of the Communications Workers of America; Annette Guarisco, Executive Director of Federal Affairs and principal deputy to the Vice President, Global Public Policy and Government Relations at General Motors; Karen Ignagni, President and Chief Executive Officer of America’s Health Insurance Plans; and Barbara B. Kennelly, President and CEO of the National Committee to Preserve Social Security and Medicare.

The panel discussed the idea of health care Voluntary Employee Beneficiary Associations, a mechanism that GM and other auto makers in negotiation with unions have adopted recently. VEBAs allow companies to contribute tax-free toward estimated future employee health costs. Guarisco argued that VEBAs benefit employees by increasing benefits and maintaining coverage while benefiting the company through lower costs and decreased risk. With the burden of coverage solely on the VEBA, there are concerns about its reliability and future solvency.

Sharing the burden of health care requires cooperation between companies, individuals, and the government as new solutions are crafted. Ignagni argued for broader solutions, including refundable tax credits to be used for health care and the creation of so called health savings accounts. But Cohen, a union leader, detailed why  a more comprehensive reform of the health care system is required. He proposed using a value-added tax to fund a universal health care system. Another option, Kennelly argued, would be an early Medicare buy-in option for early retirees, allowing them access to collective bargaining power and a pooled risk situation.

Each solution must overcome some hurdles to success, from the high cost per worker for comprehensive health coverage to the selective participation inherent in an optional program like buy-in early Medicare. Who pays is another sticking point in determining the future of health benefits. The government, employers, and individuals will likely all have to contribute in order to create a system of continuous health coverage. But one point is clear: Integrated solutions are key to solving the impending health care crisis.

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