On June 1, 2010 things could change for Mr. Smith and his wife. As part of the new national healthcare reform law, the Early Retiree Reinsurance Program offers employers a $5 Billion federal subsidy to assist with the cost of continued healthcare coverage for retirees ages 55 to 64.

How does the new incentive to provide healthcare to recent retirees work?

If an employer already has a retiree health insurance plan in place that includes the 55 to 64 age range, the employer can apply for tax-free reimbursements from the federal government. The government then reimburses plan sponsors (employers, not individuals) 80% of claims up to $90,000. Although the cash ultimately goes back to the employer, reimbursements can be used in one of two ways: they can be used to reduce the plan sponsor’s total health insurance costs or to reduce the enrollee’s out-of-pocket costs. Either way, the subsidy works to reduce the overall cost of the insurance plan and provides an incentive for the employer to provide a qualifying plan to early retirees who would otherwise be forced to seek private insurance.

Before the unveiling of the new subsidy, retiree healthcare was rapidly disappearing. Statistics from the White House cite retiree coverage dropping from 66% in 1988 to 31% in 2008. The new subsidy only applies to existing retiree plans but that does not necessarily mean that the 31% of already-covered retirees will be the only ones to benefit from the new plan. Companies may opt to continue retiree coverage rather than cancel it, or they may even reinstate old plans previously dropped to decrease overall insurance costs.

The Early Retiree Reinsurance Program is not without caveats, of course. The $5 billion subsidy operates on a first come, first serve basis. Once an employer reaches the required threshold amount ($15,000), the company can file for reimbursement immediately as of June 1, 2010. Preliminary estimates forecast that the $5 billion pot could run dry well before the plan’s 2014 expiration date. Timeliness and precision are key in filing requests for the subsidy as the employer risks losing his place in line if a complete application is not submitted. Although the funds could potentially run out, Congress could easily vote to extend the program.

What can retired workers or those considering retirement do to utilize this new subsidy now?

Talk to your employer. The subsidy only applies to companies with existing health insurance programs for age-applicable retirees. If your current company already has a plan in place, you should inquire as to whether the employer already knows about this subsidy and plans to apply for the reimbursement. Successful application for the subsidy could result in reduced monthly costs. If your employer does not currently have a qualifying retirement plan in place, the new subsidy could be the financial incentive your employer needs to begin providing this coverage. In order to qualify for the subsidy, employers must wait until a new plan year begins (typically on January 1) and with a rapidly diminishing pot of money, retirees cannot afford to wait. It is important to stay informed and ask your current or former employer about their retirement health care plans today.

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Back in 2005 I was in a very difficult situation. My wife had been in a car accident and was in a semi-comatose state. At that time I was afraid that my wife would not be able to return home and that she would need nursing home care. I came to Steve for advice about how to protect myself financia...