Retiree Plans

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Overview

Some employers and unions offer health care benefits to their retirees. Most retiree plans include benefits for prescription drugs. If you retire early, before becoming eligible for Medicare, you will usually have benefits that will change once you do become eligible for Medicare. Knowing how your retiree plan works and how it coordinates with Medicare is important.

Employers, unions, or companies that administer retiree benefits usually notify people of any changes to their health plan prior to an open enrollment period that typically lasts for about a month each year. In general, this is the period when you can switch to another plan, if you have that option.

Variations in retiree plans

Retiree plans vary widely because they are offered at an employer’s discretion; there are no standardized retiree benefits. For instance:

Some retiree plans provide comprehensive health plans with little out-of-pocket expense.
Some retiree plans require annual deductibles and co-payments when using covered services.
Some retiree plans include an annual out-of-pocket limit after which the plan pays a higher percentage of your costs.
Some retirees have the same benefits as active employees and Medicare payments are simply subtracted from those benefits.
Some employers pay the premium of a retiree plan, while others require the retiree to pay for some or all of it.
Some retiree plans only have one health care plan for all their retirees while other plans give retirees several choices.

How plans coordinate with Medicare

A retiree plan may provide you with traditional fee-for-service insurance coverage, or it may cover you through a Health Maintenance Organization (HMO) or a Preferred Provider Organization (PPO) network. Some retiree plans automatically supplement what Medicare pays. Others may not pay anything toward medical expenses that are partially paid for by Medicare.

Drug coverage and retiree plans

If a retiree plan has prescription drug coverage that is as good as or better than the standard Medicare Part D benefit, that coverage is “creditable” and you generally don’t need to buy a Part D plan. Plans that provide drug coverage must notify their Medicare eligible employees and retirees annually in writing whether their prescription drug coverage is creditable or not. For more information about Medicare Part D, please see our section Medicare Part D: An Overview.

Some retiree plans with prescription drug benefits warn their retirees not to enroll in a separate Medicare Part D plan or they will lose all their retiree health benefits. Check with your plan to make sure you know its rules for Part D.

Fee for-service plans reimburse you or your providers of particular services. They generally allow you flexibility of choosing physicians or other health care providers you want to use. However, the amount each retiree plan pays depends on the benefits of that plan.

In fee for service retiree plans, your retiree plan will be your secondary coverage and pay only after Medicare has paid. Some plans pay nothing until an annual deductible is met. Other retiree plans pay a percentage of your health care expenses, after taking into account what Medicare has paid, and others may pay only after you have met the plan’s annual out-of-pocket limit.

Managed Care Plans, like Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs), provide health care services through a network of providers. Members of these plans pay only the copayments required when using services within the network. As a retiree, you may be able to choose from several plans, or you may be limited to only one.

HMOs generally require that you use providers within their system (except for emergency care and urgent care receivedout of your service area). You may also be required to obtain approval from the plan before you can see a specialist.
PPOs encourage you to use doctors and other providers who are in their network and you pay a copayment when using services within the network. When you go outside of the network for covered services, you usually have to pay a higher co-payment.
Some employer plans may allow you to use your Medicare benefits through the traditional fee-for-service Medicare program and your retiree benefits through the plan’s HMO. With this increasingly rare combination you may be able to get Medicare covered services outside of your retiree HMO, but the HMO will not pay your Medicare deductibles and co-payments. Be sure you contact the plan to learn how your retiree plan works before you use your benefits outside the HMO network.
Some employers and unions contract with Medicare Advantage plans and offer these plans to their retirees. A Medicare Advantage (MA) plan is a Medicare Health Plan available to all Medicare beneficiaries enrolled in Medicare Parts A and B. When an employer contracts with a retiree health plan it may appear to be the same Medicare Advantage plan that other Medicare beneficiaries can join, but the benefits and the costs may be different due to the contract with your retiree plan. For more information about Medicare Advantage plans, please see our section Medicare Advantage Plans: an Overview.

Note: Employers can also contract with HMOs or PPOs for retiree coverage that is NOT Medicare Advantage coverage. The Centers for Medicare and Medicaid Services (CMS) has no authority over health benefits offered by employers. Employers are free to negotiate their own contracts and benefit designs with any health plan or company, including MA plans.

What you should know about your retiree plan

Here are some questions to ask your employer, the administrator of your health plan, or a union representative. Know what benefits your plan provides and how the plan works with Medicare. Also have the name and phone number of someone who can answer your questions if the benefits change or if you have problems getting your benefits paid.

How does this plan work with Medicare?
Do I have a choice of retiree plans, or is there only one plan? If I do have a choice, when can I exercise that choice?
Do I need a Part D plan for prescription drugs, or is that benefit included in my retiree plan? If it is included, is this plan’s drug coverage ‘creditable’ (as good as or better than the standard Medicare Part D benefit)?
Are there any deductibles that must be met before any benefits will be paid, and does a deductible apply to all the benefits of the plan or only some of the benefits?
Will the plan pay differently after I have paid a certain amount of expenses in a single year?
Does my retiree plan pay for services that Medicare does not, such as dental care, eyeglasses, or hearing aids?
Is there an annual or lifetime dollar limit on benefits the plan will pay?
Will the plan pay for my care if I move out of the geographic area?
Can I change plans if I move? (Or will I have to change plans if I move?)
If I can (or have to) change plans after I move, how much time do I have before I have to make that change?
Can my spouse be covered under this retiree plan if I leave the plan, even if he or she is younger than 65-years old?
Will my spouse still be covered after I die, and if so is there a time limit for that coverage?

Also understand that employers and unions can change the benefits of their health plans or the premiums that you pay at any time. Employers and unions can also decide to drop all health benefits, or only those benefits for retirees. Ask what your choices would be if any of these things were to happen.

If you lose your retiree plan or your benefits are significantly reduced, you may have a guaranteed right to buy a Medigap policy. For more information, see our section on supplementing Medicare, Your rights to purchase a Medigap plan. If your former employer files for bankruptcy, you may be offered a choice between several different options by the company or the court, or you may lose the benefits you have.

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Page updated April 29, 2008