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Subsidies for retiree health care

By Jennie L. Phipps · Bankrate.com
Tuesday, August 31, 2010
Posted: 4 pm ET

More news on the retirement planning front.

More than 2,000 companies and unions have been approved by the government to receive subsidies to pay for early retiree health care, according to an announcement today by the Department of Health and Human Services.

This program is part of the new health care reform law. Known as the Early Retiree Reinsurance Program, it commits $5 billion to reimburse businesses for covering the health care costs of retirees who are older than 55 but not old enough for Medicare.

The program is aimed at discouraging employers from dropping their retiree health coverage. The percentage of large firms offering retiree health coverage, Health and Human Services reports, dropped from 66 percent in 1988 to 29 percent in 2009.

The program provides an 80 percent subsidy for retiree claims between $15,000 and $90,000. You can check here to see whether your employer has been approved to get any of the money.

The Employee Benefit Research Institute says the program is underfunded and will run out two years before it is supposed to end in 2014. But by that time, there may be enough other options for early retirees that this program won't be so critical for people in retirement.

Before health care reform, buying health insurance for people older than 50 but younger than 65 was nearly impossible in some states and difficult and expensive elsewhere. Today, the industry already is making more options available with large insurers stepping up to offer significantly more individual policies, according to Health Plan Week, which covers the industry.

By 2014, the federally mandated insurance exchanges should be up and running. The Kaiser Family Foundation has devised a calculator that uses information from the Congressional Budget Office to estimate how much individuals will be expected to pay for their insurance through an exchange. It is an interesting retirement planning tool. I ran my numbers -- I will still be two years away from Medicare and can expect to pay about $10,000 per year for coverage (in 2014 dollars).

Nobody said retirement was going to be cheap.

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