Retiree Health Insurance Interview Series: Part 2: How Early Retirees and School Districts May Benefit from the Health Insurance Exchanges

Since the passing of the Affordable Care Act (ACA), the healthcare industry in the U.S. has undergone – and will continue to undergo – drastic changes. One of the main tenants of the legislation is the implementation of the federal and state Health Insurance Marketplaces (previously called exchanges), which provide Americans with the ability to shop for private Health Insurance online.

For many, the opening of the new Marketplace offers a viable alternative to expensive individual health plans. It also provides relief for some employer-sponsored health plans that are costly for both the employer and employees. Those that stand to benefit the most, however, may be school districts and early retirees.

National Insurance Services (NIS) interviewed two industry experts separately about how the healthcare industry is changing and how those shifts will influence school districts, early retirees and even current workers. In the first part of this interview series, David Branback, Director of Market Development at NIS, talked about how the traditional system is ineffective for both school districts and early retirees. In the second part, Trent Teesdale, Vice President of Compliance & Business Development at MidAmerica Administrative and Retirement Services, explains the opportunities afforded by the ACA that can be a win-win for school districts and early retirees.

Finding viable alternatives through the new Health Insurance Marketplaces

Early retirees are those that retire before becoming eligible for Medicare. Currently, many of those early retirees stay on the school district’s employer-sponsored health plan until they are 65, mainly because there were no better options. Individual policies were not very affordable.

Because the exchanges offer a variety of plan types without pre-existing condition exclusions, early retirees can finally receive quality insurance plans that are comparable to school district’s group plans. In fact, plans in the exchanges may be more affordable for early retirees than staying on employer-sponsored health plans where they may be paying a substantial amount for premiums. Some retirees may even qualify for subsidies.

“Many retirees view being able to stay on the group health plan as a benefit and a reward for faithfully working for the school district for many years,” Teesdale says. “But now there’s a real opportunity for school districts to encourage them to purchase their own health plan without affecting the morale of the retiree.”

Using HRAs in lieu of continuing on the employer-sponsored health plan

Due to the perception that group health insurance is a “Thank you” for their years of service, Teesdale explained that many early retirees – and even school districts – may not be willing to let go of retiree Health Insurance all together. So how does healthcare reform provide a solution to this issue? By rewarding retirees for their service through a Health Reimbursement Account (HRA).

An HRA is an account funded by the school district that can offset the premiums early retirees will now be responsible for, Teesdale says. School districts can put funding into an HRA that rolls over year-to-year, and early retirees can put that money toward their individual health plan premiums purchased from the Marketplace. This reduces the administrative burden from the school district and puts retirees in control of their own plans. According to Teesdale, the lower premiums offered through the Marketplaces give early retirees the ability to stretch those dollars and receive coverage longer.

Note: Retirees may use the employer contributions to an HRA to reimburse Marketplace premiums, but, due to the tax-free status of the HRA, the retiree will not be able to also qualify for a premium tax credit as long as s/he has an HRA balance.

How does Teesdale suggest school districts implement an HRA and communicate to early retirees the benefits of the Marketplaces? In the last part of this series, Branback and Teesdale will discuss the development and implementation of solutions to support everyone’s best interests.