Ready to retire? There are a lot of unknowns

Dora Atkins, 62 and a teacher in Trenton, decided to wait one more year to retire so that she'd be eligible for full health benefits. She is not alone in her reasoning.

Earlier this year, retired Independence Blue Cross claims administrator Dennis Phipps, 57, received unpleasant news about his retiree health insurance.

Effective April 1, his $66 monthly premium for coverage for himself, his wife, and their 7-year-old daughter would increase nearly sixfold - to $368 a month.

"It's really scary," said Phipps, who left the company in February 2008, part of an early trickle in what turned into a flood of hundreds of layoffs from the region's largest insurer.

Because of his age, Phipps' choice was layoff or retirement, and he chose retirement to obtain more affordable health benefits, as well as unemployment compensation.

To be sure, the price of coverage for the Phippses isn't too bad - it's less than half the national average for family coverage. Despite his sticker shock, it had all been duly explained, even though, at the moment, with no job, he has no idea how he is going to pay the bill.

When premiums hit a cap, retirees have to pay everything over the cap. That happened in 2010, company spokeswoman Elizabeth Williams said.

But Phipps' story illustrates how tricky it can be to navigate retirement and health benefits, particularly for those retiring below age 65, when Medicare kicks in.

The sweeping health-care legislation enacted in March will have an effect on retirement health coverage, but the details are far from certain.

The most immediate and concrete effect will occur next year when the government takes measures to fill in the "doughnut hole," a cutesy name for a terrible problem for many senior citizens.

People who have a Medicare Part D plan for prescription drugs pay a $310 deductible and monthly premiums averaging about $39. Once they meet the deductible, they pay 25 percent of their costs and the plan picks up the rest until the total cost reaches $2,830. Then seniors enter the dreaded doughnut hole and have to finance the next $3,610 of prescription costs on their own. After that, seniors pay 5 percent. This pattern repeats yearly.

This year, seniors who enter the doughnut hole will get a check for $250 - enough to buy a lot of doughnuts, but not many pills. In 2011, seniors in the hole will get a 50 percent discount on brand-name drugs, but will be credited at full price. That will move them through the hole faster, at a cheaper price.

The situation will improve yearly. By 2020, the doughnut hole will be closed.

Where it gets more complicated is for people such as Dora Atkins, a computer-sciences teacher in Trenton. Atkins, 62, might have retired this year, but she decided to wait one more year until she becomes eligible for full health benefits.

"I love what I'm doing," said Atkins, who lives in Columbus in Burlington County. "But medical benefits were the driving force."

That sort of calculation is common, said Ray Landis, Pennsylvania's advocacy manager for AARP, an advocacy group for the 50-plus crowd.

"So many of our members who are thinking about early retirement . . . the biggest equation in their decision-making is health-care coverage," he said.

"When you are 60 years old, odds are you have a preexisting condition or you have chronic conditions that need constant treatment," he said. That's why those on the cusp of retirement might be reluctant to give up employer-provided health-care coverage, especially when they have several years to go before aging into Medicare.

Landis said that people who had preexisting or chronic conditions were often priced out of the individual market, if they can even find a policy to buy. Even under the new legislation, bans on denying coverage based on preexisting or chronic conditions don't kick in until 2014.

Meanwhile, those individuals may at least be able to buy coverage from the soon-to-be-implemented national high-risk insurance pool. Whether the premiums will be affordable remains to be seen.

Probably one of the most interesting aspects of the new law requires workers to think about their retirement well before they retire.

Known as the Class Act, the provision will require employees, unless they opt out, to set aside money with every paycheck to provide a form of long-term-care insurance.

Starting in 2013, workers must contribute for 60 months before they can draw from the fund, which is designed to be actuarially self-sustaining.

The money can be used to pay for home modifications, or home health or nursing home care for someone deemed disabled, said Thomas M. Lilly, a Pittsburgh lawyer and insurance broker whose company, FutureCare Associates, specializes in long-term-care issues.

Lilly thinks many of the employees who participate will be those in poor health who bet they'll need the care. Known as adverse selection, this possibility may drive up premium costs and ultimately sink the whole plan.

"While this well-intentioned proposal survived the legislative process," Lilly wrote in an e-mail, "I think that there are serious issues as to whether it will survive in the real world of voluntary long-term-care planning and claims."


Contact staff writer Jane M. Von Bergen at 215-854-2769 or