School districts that are struggling to pay for healthcare for former employees are finding relief with retiree benefit carve-outs.
A career in public school education typically promises rich, lifelong health insurance benefits. But the increasing retiree population, coupled with constantly rising healthcare costs, makes it difficult for school districts to manage their retiree healthcare plans. You may have heard that carving out these benefits—called retiree carve-outs—could be a remedy. But is it true?
Many states have no funds set aside to pay for retiree healthcare benefits, and, until recently, had not calculated what their obligation to retirees would be. States also do not have funds for 93.4% of other post-employment benefits, which include things like life or disability insurance.1
Health benefit plans for retirees aren’t as efficient as they can be, which puts pressure on administrators and former employees who use those benefits. State benefit health plans haven’t lived up to their promise. Retirees move out of state, or to another county or city in their school district’s home state, triggering out-of-network healthcare costs. These higher costs, coupled with increasing copays, are burdensome for retirees living on fixed incomes. Administrators feel the pain, too, as they spend a large part of their time answering questions about health plans from retirees.
A carve-out can meet the needs of an aging population that may no longer live near the school district. Here’s an example: A Long Island, New York, school district leveraged a carve-out that offered lower copays, eliminated networks (and out-of-network costs) and eliminated deductibles, giving retiree members the freedom to see any provider across the country as long as the provider accepts Medicare. The district turned over the benefits administration to a third-party administrator. The administrator handled everything from negotiating contracts to enrollment, day-to-day management, compliance, reporting and member and call center services. The school district saved $2.2 million in one plan year, all while continuing to offer rich benefits to their retired workers.
Here’s an important caveat: The transition to a retiree benefit carve-out won’t be successful without careful planning and information sharing. Because of the spotlight that’s shone on school districts and other public entities, it’s important to go to retirees and those hoping to retire soon with clear information on what to expect from their new benefits plan. Ideally, employee education & communications should begin when the plan is introduced and last three to six months after rollout to help ease the transition.
The first question that employees will ask is, “Will I lose the quality of benefits I’ve grown accustomed to?” An employee education & communications campaign is an ideal opportunity to tout the advantages of the retiree transition, such as savings on copays, no network and no deductible, plus dedicated support for their healthcare claims and benefit questions.
With a careful rollout strategy and focused member services, retiree benefit carve-outs can provide savings for public school districts, which can invest in other education-related programs. Retirees can save on healthcare copays and out-of-pocket insurance costs. I call this a win-win.
1Pew Trusts, “Update: 50-State Survey of Retiree Healthcare Liabilities”
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