The San Diego Union-Tribune - June 12, 2005
 

 
 Golden fears
 

Older Americans are putting off retirement or returning to the work force to collect benefits and offset increases in health care costs

By Sarah Skidmore
 

UNION-TRIBUNE STAFF WRITER
 

 

Sandra Sloan was nearly 60 when she decided to don Home Depot's signature orange apron. The former apartment manager jokes that it made sense to work at the store because she spent half her time there anyhow.

But shortly after she started, Sloan was diagnosed with colon cancer. As a part-time worker, her medical benefits were limited and didn't cover all her treatments. Now with her cancer in remission, Sloan has returned to work full time, with full benefits.

"I'm going to continue working past 65, 67," said Sloan, 61, of San Diego. "As long as they'll have me."

A number of workers are, like Sloan, working through the years that previous generations might have spent in retirement. To cope with rising health care costs, some are prolonging their working days while others are returning to the work force after retirement.

It's a difficult trend to measure, but the number of workers age 55 and older in California has increased by 1.5 million in the past decade, according to state data. And a recent Towers-Perrin survey found that 78 percent of current workers plan to work in some capacity into retirement, about half for financial reasons. Among those reasons, No. 1 is health care.

"It's hard to be prepared," said John Rother, policy director for AARP. "Whenever possible we recommend you save as much as you can, work as long as you can and be prudent with your savings."

People are living longer and costs are rising unpredictably. Out-of-pocket health care expenses for retirees are expected to more than double between 2000 and 2030, according to estimates by the Center for Retirement Research at Boston College. The center projects that roughly half the gains in income an individual will make in the next 25 years will be eaten up by health care spending.

In contrast with pensions, which have some protection through the federal Pension Benefit Guaranty Corp., there is no assurance health benefits promised during employment will be delivered during retirement.

So what's a retiree to do?

For the ones who have employer-provided benefits, be aware of what has been offered. The U.S. Department of Labor suggests reviewing and keeping a copy of the plan documents the employer provides. The documents will outline the benefits offered and may also indicate whether the employer has reserved the right to change those terms, which could indicate higher premiums or even eliminate benefits in the future.

Those who want to retire before 65 are increasingly out of luck. Unless they have coverage from a former employer, which fewer and fewer people do, they'll have to find insurance on their own. This can be a pricey and difficult task in part because plans are medically underwritten, taking into account individuals' health conditions. Or they can exhaust COBRA, a federal law that allows workers leaving a company to continue the same level of health benefits they had through their employer for up to 18 months at their own expense.

People who wait to retire until 65 are not off the hook. At 65, individuals become eligible for Medicare. But Medicare-related costs are on the rise, as is the supplemental insurance people commonly buy to cover what Medicare doesn't. Additionally, the future of Medicare is somewhat uncertain because new benefits covering prescription drugs remain largely unfunded.

"I'm one of the fortunate ones," said Michael Sellers, a San Diego resident who pays $7,800 a year for retiree health benefits that were supposed to be nearly free.

Sellers retired from Lucent Technologies after 30 years. The company said it would pay 90 percent of the premiums for health insurance for him and his family. The first year of retirement, the company paid the whole bill. The next year Sellers paid $17 a month, then $54, $155, $282 and now $605.

In 2004, the company started eliminating the subsidy for management employee's spouses and dependents, according to Lucent's retiree association. "It's annoying, it's frustrating, it's infuriating after 30 years," Sellers said.

Sellers says other Lucent retirees are losing their entire pension checks to insurance premiums or getting a bill instead of a check.

"When I retired I thought I'd be fishing and playing golf," said Ed Beltram, a Colorado-based spokesman for the Lucent retiree association. "I still play golf, but I've taken a job managing a golf course."

Between 1998 and 2004 the share of large employers offering retiree health benefits declined from 66 percent to 36 percent, according to a Kaiser Family Foundation and Hewitt Associates study. The majority of those that continue to offer the benefits are limiting care, shifting costs to workers and considering further changes.

The decline in retiree benefits began in the 1990s after accounting standards were introduced that required private-industry companies to record the benefits as liabilities on their financial statements. After shining a light on the costs, and their bottom lines, many employers limited or eliminated benefits for current and future retirees.

A similar rule is scheduled to take effect soon for government employers, which are the largest remaining providers of retiree health benefits.

Most current U.S. workers will never be eligible for health insurance in retirement through an employer, according to a study by the Employee Benefit Research Institute. This leaves the planning and support of health care costs up primarily to the individual.

"Most seniors understand health care is going to be one of the biggest expenditures in retirement," said Paul Neves, a local certified financial planner and president of Financial Strategies Inc.

Some workers are staying at jobs longer or take a new job for part-time benefits. Others are turning hobbies into small businesses to gain access to small group plans in California, planners said.

Generally, finding coverage before age 65 can be difficult. Neves said workers age 50 to 65 who apply for coverage are rejected more than 75 percent of the time because of pre-existing medical conditions.

When they can find a plan, it can be expensive. The California Health Care Foundation said the cost of an individual policy can vary greatly for older workers. For example, a 52-year-old could pay monthly premiums from $118 to $547 for a high-deductible plan, depending on the type of coverage desired. And that doesn't factor in any health conditions or other rating criteria.

"With everything related to health care, costs are really at the root of it, whether it's individuals or employers or the government," said Gerry Smolka, senior policy adviser in AARP's Public Policy Institute. "All three payors are struggling with how are we going to keep up with these cost increases."

Chris Rand, a San Diego certified financial planner speaking on behalf of the Financial Planning Association, said the problem has become more pronounced in the past year as baby boomers prepare to retire and health care costs dominate the headlines.

"People realize they have to have health insurance," Rand said. "It's the one insurance they can't go without."

 Sarah Skidmore: (619) 293-1020; sarah.skidmore@uniontrib.com