The harsh reality for a couple retiring at age 65 this year is that they will need a small fortune just to cover their medical expenses in retirement. But as employers look to exit the retiree health care business, health savings accounts and private exchanges are emerging as viable alternatives to help retirees with their health care expenses.

AT&T recently announced it would join Aon Hewitt’s private retiree health exchange. The communications giant joins companies such as Time Warner and IBM that have taken a similar stance toward moving retirees to private exchanges.  

“The private insurance marketplace will provide these Medicare-eligible retirees with more options, offered by more insurance companies, than our company plan currently offers, giving them more say in selecting medical coverage that is best for them,” Marty Richter, a AT&T spokesperson, tells EBN.

The full changeover is slated for 2015, according to the company.

One estimate pegs the cost of health care during retirement at $220,000, which may be a shock to many.  

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“The estimate is probably surprising to not only employees and individuals, but to most of HR that the liability is so big out there,” says Sunit Patel, senior vice president of Fidelity Benefits Consulting. “From a plan sponsor’s perspective, I think that employers can benefit by helping employees prepare, but also helping themselves.”

Patel tells EBN that employers can help themselves out by making sure their workforce is strategically focused on doing their job rather than worrying about their retirement or other financial needs when exiting the workforce.

“[Employees] may want to retire but may not be in the position,” he adds. “I think most employers don’t want employees on the job who really want to retire – but just can’t for financial reasons – because they may not be as engaged.”

As those nearing retirement may not know how much should be rationed for medical expenses during retirement, education and offering savings options such as HSAs may be helpful. Steve Wojcik, vice president of public policy at National Business Group on Health, advises that employers who communicate general retirement advice, such as getting started “early and often,” can also apply those same messages to the retiree health cost realm.  

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“A lot of people are under the assumption that Medicare is going to cover a lot, and Medicare does not,” Wojcik explains. “But the more that people are aware, the more they will be at least prepared and can try to do something ahead of time.”

And this is where widespread use of the HSA could come in handy. The HSA is a product that many companies have used to help employees deal with their share of  health care expenses under high-deductible health plans or consumer-directed health care plans. The Employee Benefit Research Institute reports there was approximately $23.8 billion in HSAs and HRAs in 2013, a 282% increase from 2007.

When asked if plan sponsors may be falling short in their HSA messaging, Patel explains that employers may need to focus their touch points to employees a bit better, as health care inflation will likely continue to grow retiree health costs.

“The vast majority of people don’t really think of it as a retiree savings vehicle, and it’s unfortunate,” Patel says. “It’s the most tax effective of any account or investment vehicle we have out there. It’s the only one that’s triple tax advantaged.”

Wojcik agrees, and notes that improvements in modern medicine mean people are living longer and living longer with chronic disease. “So the likelihood that you are going to have significant medical expenses in your retirement is fairly certain,” he says. 

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