Boca Benefits Consulting Group Inc.

Many cost strapped employers are looking for ways to have older, more costly, employees seek early retirement without violating any age discrimination statutes. Below are some healthcare considerations to think about if you are approached.

If retiring at approximately 62 years old, there are four  healthcare options that might be available to you:

• COBRA ( http://www.dol.gov/ebsa/faqs/faq_consumer_cobra.HTML )
• Individual policy ( http://bocabenefits.com/GR 4-2009 Plans Brochure.pdf   )
• A “bridge” provided by the employer to age 65
• New employer with a group plan

COBRA with ARRA 2009 Considerations

In the case of COBRA, the expense may or may not be prohibitive depending on how your separation from service is actually defined. If “involuntary” between now and 12/31/2009 the 65% subsidy required by the American Recovery & Reinvestment Act 2009 would apply and for the nine months following the separation date your cost would be 35% of the normal 102% of true cost COBRA rates (i.e., true cost being what the total premium is for your enrollment type, not just the percentage of the cost passed along to the employee) for that period. Unless the ARRA 2009 were to be extended, the costs would go back to 102% of true costs at that point. See the piece at http://bocabenefits.com/stimulus_cobra.pdf for more info. Specifically, take a look at the income thresholds that might reduce the subsidy for you. Note: this is a zero cost subsidy for your employer.  One hundred percent of the subsidy amount is recovered via a payroll tax offset.

Individual Health Policies

Individually purchased policies are problematic for several reasons. Costs for just one person at 62 will run about $400-$500 per month (possibly less if an HSA plan). Essentially twice that for a couple. They are also not “guaranteed issue” meaning that your health status will be considered before an application is accepted and a policy issued. You can be declined, be up-rated or have policy benefit terms modified.

Early Retirement Bridge With Current Employer

A “bridge to 65” agreement with an employer is usually the best course for everyone. That is, the employer continues the employee on the health plan as if they remained an active employee until they reach Medicare eligible age. It is likely that the employee would be kept in prolonged “leave of absence” status to remain qualified for participation in the plan if no retirement health is offered otherwise. A highly paid, tenured employee can be replaced by a less experienced and less expensive new hire. Over the course of three years that could be worth in excess of $100,000 for the employer (i.e., likely substantially more). Most employers would jump at the chance to trade off three years of health care premium  for the separating employee and spouse (i.e., a guess at the cost: $36,000 pre-tax ) against the direct and indirect payroll savings. However, there is a potential downside to the employer. If the health plan is self-funded, every claim dollar incurred by the employee or spouse below some threshold per year (i.e., varies by employer size from $50,000 to $250,000;  threshold possibly higher for jumbo sized employers) will be a direct pre-tax cost to the employer. A million dollar organ transplant can eat up the entire payroll savings very quickly. It is therefore somewhat of a roll of the dice for the employer. Note: this also applies to “experience rated” insured plans to some degree where deficits from prior years are recoverable via going-forward underwriting.

It is very important that if negotiating a bridge type agreement that spouse coverage be an absolute deal breaker. You must have it if you have a spouse of roughly equivalent age who does not have a source of health care at his/her employment or who has retired earlier. You may be able to strike an agreement whereby a Medicare eligible spouse specifies that Medicare is to be “primary” and the employer’s plan will be “secondary” in claims payment order when age 65 is attained. That lessens the possible claims impact somewhat. You can also make the argument that more than likely the employer is going to own the employee and dependent claims under most of the above scenarios (i.e., stays employed, goes on COBRA, or falls under a bridge agreement).

Many large employers have canned early retirement packages on the shelf with the above kind of provisions. Human Resources professionals should be aware of them on the local/regional level. However, if that does not appear to be the case, an inquiry at the home office level might be required. HR people should also be willing to discuss these matters “off the record” to ensure no negative behavior by supervisors.

The Minimal Employment Scenario

Lastly, the new employer alternative. Many older early-retired people find work at the minimum hours and minimum skill levels required for them to qualify for health care coverage at a new employer. It occurs frequently at the ski resorts in Colorado where formerly high powered execs are now running ski lifts, acting as mountain guides or teaching lessons. If it fits your life style, it is a consideration. If it were to cramp the post-retirement life-style you envision, it obviously would not.

 Suggested Course of Action

Set up a confidential meeting with the appropriate HR person and discretely explore your options.

Injured or Ill Members of the Armed Forces

The Labor Department will release regulations November 14, 2008 which will let family members of seriously injured or ill members of the armed services take up to 26 weeks off from work each year to care for them.

The military caregiver provision gives family members up to 26 weeks off, longer than the normal maximum of 12 weeks under the Family and Medical Leave Act. The provision also allows additional family members, including siblings and cousins – not just spouses, parents or children – to take time off.

Relatives of National Guard or Reservists Called to Duty

The regulations also will allow family members of those called to active duty in the National Guard or the Reserves to take up to 12 weeks off so they can manage needed and often rushed matters regarding a service member’s departure or return.

Labor Department officials said the law creating the leave for such situations did not cover regular active-duty military members.  DOL indicates that the provision is to assist families of deploying Guard or Reservists where significant family adjustments must be made as a result.

Other Changes

• Allowing employers to require “fitness-for-duty” evaluations for workers who took leave time and are returning to jobs that could endanger themselves or others.
• Forcing workers to tell employers in advance when they want leave time. Current regulations allow employees to tell employers up to two days after not showing up for work that they are using leave time. Employees will now have to follow their employer’s regular rules for informing them about missing work “absent unusual circumstances.”