Health care law helps businesses provide coverage for early retirees

Employers that provide health insurance to early retirees can begin applying for money next month under the new federal health care law. That program aims to encourage employers to continue providing health care benefits to employees that retire early.

It will reimburse companies, state and local governments, and non-profits, a portion of the money they pay out in claims for their retirees.

When Barbara Fici, 63, retired six years ago, she was able to devote a lot more time to the flower gardens which she has tended for many years in the backyard of her south Minneapolis home.

Fici worked for more than 30 years in Hennepin County's human resources department. She retired at age 57, under a program which no longer exists.

That program allowed workers to retire with full pensions and health insurance benefits once their age plus years of service totaled 90. Fici's health insurance benefits last until she's eligible for Medicare at age 65.

"This has been a nice interim period here, to have the employer picking up much of the coverage," said Fici.

The nonpartisan Employee Benefit Research Institute estimates there are about two million retirees like Fici whose former employers will pay their health insurance until age 65.

"It's hard to believe that employers will leave money on the table, even if it costs them something to get that money."

Depending on which study you use, the number of companies that offer this kind of benefit is either slowly eroding or dropping like a rock.

In 2009, approximately 47 percent of early retirees, between the ages of 55 and 64, in Minnesota had coverage through an employer. That amounts to about 50,000 individuals, according to the Minnesota Health Department's Health Economics Program.

The Health Department said while "these results seemed initially surprisingly high, one interpretation would be that the decision to retire early might very well be influenced by the availability of retiree health coverage through an employer, resulting in a fairly high share of early retirees with group coverage."

Barb Fici has been healthy. But one of the reasons employers often stop providing retiree health insurance is because of fear they'll have to pay out on a major claim such as a heart attack or cancer. As an incentive to keep covering these retirees, the federal health care law will reimburse employers for a chunk of these higher claims.

U.S. Commerce Secretary Gary Locke said on a recent web chat that the federal government will reimburse employers 80 percent of an early retiree's claims between $15,000 and $90,000.

"This government program of $5 billion will cover those extra costs above and beyond the normal costs, and that will keep the premiums low for that company," said Locke.

An early retiree under this program is someone aged 55 to 65, or the point they qualify for Medicare. The question is whether reimbursement for those claims is enough of a carrot to induce employers to continue offering coverage for their early retirees.

Economist Paul Fronstin, who directs the non-partisan Employee Benefit Research Institute, says it probably is.

"Because it's a pretty generous subsidy. Eighty percent of very high expenses is a lot of money," said Fronstin. "It's hard to believe that employers will leave money on the table, even if it costs them something to get that money."

Barb Fici is one of about 970 early retirees that Hennepin County provides with health insurance. County Administrator Richard Johnson says it's hard to know how much the federal reimbursement program will save the county, but it'll definitely apply for the funds.

"We're waiting to see what the rules are. They have not been published yet, but we would certainly pursue it," said Johnson. "I'm not sure it's a lot of money for us, but in these challenging times and limited resources, I think it's something we'll take advantage of."

There's doubt about whether the $5 billion will be enough to last until 2014. If a former employer provides insurance to retirees and their dependents, the law will reimburse employers 80 percent of those dependents' higher claims as well. It's hard to predict how many people that will include, and what kinds of claims.

Probably more telling, the Department of Health and Human Services put out a recent memo that said, "Because funding for this program is limited, we expect more requests for reimbursement than there are funds to pay the requests."

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