February 18, 2014 by Trent Teesdale and David Branback
Keeping early retirees on the school district’s group health plans can be expensive for the retiree, the district and consequently, current employees (overall premiums increase with retirees as participants on the plan). While viable alternatives for retiree healthcare didn’t exist in the past, the Health Insurance marketplaces (previously called Exchanges) under the Affordable Care Act (ACA) provide early retirees with the ability to retire around age 55 and yet receive affordable healthcare.
Most early retirees perceive the insurance benefit as a reward for their years of loyalty and hard work; therefore, most districts have plans to continue offering the benefit. Also, more often than not, retirees still need financial help from their employers to pay for coverage. Retiree-Only Health Reimbursement Arrangements (HRAs) provide the solution for both early retirees and employers.
However, educating school districts and early retirees about the benefits of implementing an HRA can be the most challenging part of the solution.
In the first part of this interview series, David Branback, Director of Market Development at National Insurance Services (NIS), talked about how the high costs of the traditional system for both school districts and early retirees. In the second part, Trent Teesdale, Director of Operations at MidAmerica Administrative and Retirement Services, explained how the ACA creates new opportunities for school districts through the insurance exchanges, as well as the benefits of providing a Health Reimbursement Arrangement (HRA) to the early retirees. In this last part, Branback and Teesdale reveal how educating employees is key to helping retirees withdraw from the district’s plan and get coverage elsewhere.
The migration to HRAs
HRAs are not a new concept. In fact, NIS has been a leader in funded HRAs since 2002. What’s new is using the HRA funds for plans in the Federal or State Marketplace.
Funds in the HRA account carry over year-after-year and earn interest. According to Branback, the biggest obstacle to widespread HRA implementation is education. Although Branback says employers in the private sector, such as FedEx, IBM and Sears, have been providing their older retirees with HRAs for years, many in the public sector are either unaware of the benefits or are unable to let go of the traditional systems.
Teesdale says although premiums for plans offered through the exchanges are more affordable than some group plans, until people become comfortable with the Marketplace and enough time has passed to collect applicable data, the migration to HRAs to fund Marketplace insurance plans may take a few years. Teesdale predicts that school districts will adopt an HRA and encourage early retirees to enter the Marketplace on a case-by-case basis.
Education is key in the transition to HRAs. According to Branback, many early retirees choose to use their HRA funds to stay on the employer’s group plan because they are simply unaware of the benefits of other plans. Additionally, districts may be reluctant to abruptly end retiree enrollment in the group plan.
“This is new for everybody; there’s some people who are going to say, ‘I don’t know much about insurance. I don’t want to make big decisions about my insurance.’ Others may say, ‘I trust the insurance I’ve had all along so I’m just going to continue on that,’” Branback says.
Teesdale says it may take time for people to understand the benefits through one-on-one consulting sessions, online educational services and group presentations with HRA consultants. School districts may want to consider a phased development plan.