Early Retirees

Written by John Goodman


There are 78 million baby boomers and a very large number of them have retirement on their minds. If the past is a guide, more than 80% of them will retire before they become eligible for Medicare (at age 65). Although about one-third of U.S. workers have a promise of post-retirement health care from an employer, almost none of these promises are funded and, as is the case of the automobile companies, are likely to be broken in whole or in part.

As a result, millions of retirees will find themselves buying their own insurance in the individual market. There they will face some unpleasant realities, which for many of them may come as a shock:

Unwise public policies will make these problems even worse. And far from correcting these mistakes, ObamaCare promises to pile new problems on top of existing ones.

In general, tax law, labor law and employee benefits law favor the active employee and discriminate against the retiree. For example, here are three public policy barriers that will stand between early retirees and affordable health insurance:

As for employer promises of post-retirement health care, it tends to be an all-or-nothing proposition. That is, employers can keep their retirees in their group insurance plan - paying with pretax dollars - or they can do nothing. It's hard to be in between. If an employer cannot afford, say, $12,000 family coverage for a retiree, the employer cannot split the difference and contribute $6,000 to the employee's individually-owned insurance. Such a contribution would be treated as taxable income.

The obvious solutions to these problems are: (1) allow employers to contribute (say, to a retiree's Health Savings Account) any contribution the employer can afford to make; (2) allow the retiree to pay his share of premiums with pretax dollars and (3) allow active employees and their employers to save tax-free - knowing that they will face the problem of post-retirement care.

Yet precisely because these solutions are obvious, direct, simple and workable, they are nowhere to be found in ObamaCare.

Instead, the new law creates subsidies for employer-provided insurance for retirees between now and 2014. However, these subsidies go not to individuals but to employers. And because higher-income employees are more likely to have an employer promise of post-retirement care, the subsidies will go to those who least need them.

These subsidies end in 2014, by which time insurers - selling in a newly created health insurance exchange - will have to accept all applicants regardless of health condition. Since the difference in premiums in this artificial market cannot exceed 3 to 1 (rather than the actual cost ratio of 6 to 1), the idea is to overcharge young people so that 50- and 60-year olds can be undercharged.

Problem is: It appears the mandate will be weakly enforced. If people wait until they get sick to insure, the average premium in the exchange will have to be quite high to cover the costs. As a result, seniors could face higher premiums in the exchange than they would have faced with no reform at all.

John_GoodmanJohn C. Goodman is president and CEO of the National Center for Policy Analysis. The Wall Street Journal and the National Journal, among other publications, have called him the "Father of Health Savings Accounts," and the Media Research Center credits him, along with former Sen. Phil Gramm and columnist Bill Kristol with playing the pivotal role in the defeat of the Clinton Administration's plan to overhaul the U.S. health care system. He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system.

Dr. Goodman's health policy blog is the only right-of-center health care blog on the Internet. It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts throughout the country-conservative, moderate and liberal.




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