Universities Develop Plan To Supplement Medicare for Retirees

The Los Angeles Times on Wednesday profiled a new health insurance plan created by 29 universities and colleges that lets workers and employers contribute to a fund to pay for retired employees' medical expenses and supplement Medicare. Under the Emeriti Program, which is similar to a 401(k) plan, employees can contribute an unlimited amount of after-tax dollars to an account, and employers can determine their own formula for contributing matching funds. Investment options will be provided by Fidelity Investments, which also will manage employees' records. Health insurer Aetna, which has signed a five-year contract with the program, will underwrite retirees' supplemental Medicare coverage.

Funds from the Fidelity accounts can be used to pay insurance premiums until the accounts are insolvent. If the retiree dies, the money could be used by an heir for health-related costs. The group of colleges instituted the plan because they were concerned that employees were delaying retirement in order to maintain health insurance coverage. The program is administered by Emeriti Retirement Health Solutions, a not-for-profit organization established by universities to study the issue and identify solutions. William Custer, the director of health services research at Georgia State University, said, "This is brand new -- you're pre-funding your supplemental retirement coverage."

An additional 200 colleges and universities are considering the program, and program administrators say employers in other industries might adopt the plan. The program will start July 1 with an estimated 3,000 individual participants. However, critics of the program say it shifts more health care costs to workers. Jerry Flanagan of the Foundation for Taxpayer and Consumer Rights said, "The move toward savings accounts to replace retirement coverage is symptomatic of a lack of leadership necessary to make health care affordable." Critics also are concerned about preserving insurance options over time (Vrana, Los Angeles Times, 5/25).