Seven minor adjustments to Medicare and Social Security regulations will combine to severely erode the affordability of health care for your current and future retirees. A typical retiree could experience lifetime benefit losses from $37,000 to $57,000 or more due to these “insignificant” changes. Unfortunately, these changes will not result in long-term reform to preserve the value and affordability of Medicare.
Many education agencies generously provide health insurance benefits for retirees. If a conventional retiree medical plan is not in your budget, a defined contribution Health Reimbursement Arrangement (HRA) could be an affordable option.
Unlike a defined benefit plan and their rising costs, a defined contribution plan limits your district’s contribution toward that benefit. The contribution is not tied to rising insurance costs, makes cash flows more predictable, and reduces or eliminates devastating OPEB (Other Post-Employment Benefits) liabilities. The HRA provides a valuable retiree health benefit to employees. The employer regularly deposits funds into individual accounts on behalf of employees while employed at your school. HRA funds and earnings are free from federal income and FICA taxes.
“An HRA provides a valuable retiree health benefit to employees.”
A defined contribution HRA is a valuable savings vehicle for employees. Because employer deposits are made completely tax-free, the employee receives 100% of the value of each benefit dollar. Funds grow over time in an interest-bearing account. HRA account balances roll over year to year, qualified expenses are reimbursed tax-free, and funds can be used to reimburse eligible medical expenses incurred by the retiree, their spouse, and any qualifying dependents. Instead of being tied to a “one size fits all” employer medical benefit, retirees can use their HRA funds to purchase individual coverage that is more affordable and specific to their situation.
A Defined Contribution HRA helps your employees transition into their retirement and ensure they receive the most appropriate benefit, even while health care costs continue to rise.