Retiree Health Care Costs vs. Adequate Coverage:
Striking a Balance

The availability of health care coverage in retirement is something that most of us don’t think about until late in our careers. With the increase in health care costs, this is an issue of growing importance to current and future retirees, and trustees of health and welfare plans, and was a topic of discussion at last year’s BAC/ICE Trowel Trades Trust Fund Educational Conference.

Finding a balance between meeting retirees’ health care needs and maintaining the financial integrity of a plan is a critical issue for fund trustees and participants. “The rising cost of health care is the single biggest concern facing our health & welfare fund trustees,” Secretary-Treasurer James Boland told Conference attendees. “That’s no surprise given that in the last several years health care costs, including the cost of prescription drugs, have increased at record rates.”

BAC health & welfare funds have made progress in the area of retiree health coverage. In a survey of fund trustees and professionals, 63 percent of those surveyed said their fund offers health coverage to all retirees, and another 16 percent said they offer it to retirees until they reach age 65 and are eligible for government sponsored health coverage. When trustees and fund professionals were asked how the coverage is paid for, 47 percent said it is self-pay, 41 percent said that the trust fund pays a portion and the retiree pays a portion, and 4 percent said the fund pays the entire cost.

Alan P. Cohn, a Senior Vice President with The Segal Company, an actuarial and benefits consulting firm, told participants, “There is no ‘one size fits all’ approach or easy answers to financing retiree health care, but there are a number of different strategies that trustees can consider,” such as:

• A 401(h) account,
• A separate account set up under a 401(k) plan earmarked to pay for retiree health benefits or premiums,
• A supplemental defined benefit pension earmarked to pay for retiree health benefits or premiums, or
• A 501(c)(9) Trust, also called Voluntary Employees’ Beneficiary Association (VEBA) which can be created to cover “life, sickness, accident, or other benefits.”

These are just some of the non-traditional approaches available, Cohn told attendees. Each approach takes a commitment of funds on the part of current and/or future retirees. “One of the best things that members can do to prepare for their health coverage in retirement is become educated on what their plan offers by reading the Summary Plan Description, and participate in meetings held by your Local or fund on your benefits,” says International Health Fund Executive Director Anne Codd.