The latest invention to come out of U.S. universities has nothing to do with science or technology. Instead, it's a new kind of health...
The latest invention to come out of U.S. universities has nothing to do with science or technology. Instead, it’s a new kind of health insurance.
Worried that many employees were delaying retirement simply to keep their medical coverage, a group of colleges and universities has created a plan that lets workers and employers contribute to a fund that can be tapped after retirement for medical expenses and for insurance to supplement Medicare.
Although criticized by some, the Emeriti Program — a defined-contribution plan similar in some ways to a 401(k) account — may someday be adopted by other types of employers.
It’s too early to estimate the number of individual participants, but the program has enrolled 29 colleges and universities. Another 200 are considering it.
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Helping run it are two corporate giants. Boston-based Fidelity Investments, the nation’s largest mutual fund, will provide a menu of investment options and keep the records. Aetna, the third-biggest U.S. health insurer, will underwrite the policies members buy after retirement to supplement Medicare.
“This is brand new; you’re pre-funding your supplemental retirement coverage,” said William Custer, the director of health-services research at Georgia State University in Atlanta.
Employees who enroll can contribute an unlimited amount each year in after-tax dollars; employers can choose their own formula for adding to the employee’s contributions.
Fidelity puts the money into its Freedom Fund program, which includes so-called life-cycle funds that invest more conservatively as the person ages. Investment gains and payouts are tax-free.
After retirement, the employee enrolls in Medicare but gets supplemental health insurance from Aetna. The insurance would cover a retiree no matter where they live in the United States, even if they split their time between two homes, said Wendy Morthew, spokeswoman for Aetna.
While educators hailed the program as a creative way to tackle rising health-care costs in retirement, some critics call it part of a worrisome trend to shift more financial responsibility to employees.
“The move toward savings accounts to replace retirement coverage is symptomatic of a lack of leadership necessary to make health care affordable,” said Jerry Flanagan, with the Foundation for Taxpayer and Consumer Rights, a Santa Monica, Calif.-based nonprofit.
The program is administered by Emeriti Retirement Health Solutions, a nonprofit in New Windsor, N.Y., that universities formed to study the problem and find a solution. It received approval from the Securities and Exchange Commission and the Internal Revenue Service to develop the plan.
“In the future, we’d like to see it expand” to other types of workers, said Barbara Perry, a vice president with Emeriti, which found many university faculty and staff were delaying retirement due to concerns about how to pay for health care.
Government approval would be needed to expand the plan to for-profit employers, she said.
At Dickinson University, a private school in Carlisle, Pa., with more than 600 employees, the plan will be available July 1. No matter how much employees contribute, the university will begin putting in half of 1 percent of their annual pay each year, officials said.
Employees age 35 and over and with at least one year of service are eligible.
“Many people don’t retire because they are concerned about health-care costs in retirement. People are very worried about it,” said Annette Parker, vice president and treasurer at Dickinson. “We think this will help us get employees ready.”
Still, critics expressed concern about what the health-insurance industry will look like in a few decades, especially if Aetna is sold or has financial troubles, Custer said.
“One question is the range of choices for your supplemental coverage,” he said.
A spokeswoman for Emeriti said it doesn’t anticipate any problems with Aetna, but the company is under a five-year contract that must be renewed.
Funds from the Fidelity account pay the Aetna premiums until they run out.
Any money left in the account after the employee dies can be used by heirs for health-related costs, even if they are not yet retired.
The average couple retiring this year at age 65 will need $190,000 to pay for health-care costs, Fidelity estimates.