A retiree plan is not the active plan with older people on it.
Two populations, two sets of rules, one line item. A retiree under sixty-five is buying the most expensive coverage of their life in the years before Medicare starts; a retiree over sixty-five is on a plan that pays second to a program you do not control. The design that is right for one is usually wrong for the other, and the promise behind both sits on your balance sheet whether or not anyone has measured it.
There is a way out of the group sponsorship role that still keeps the promise.
A retiree under sixty-five is too young for Medicare and too old to be cheap, which is why this population is the one that breaks a retiree budget. We place a captive arrangement built for exactly this group, and the design decisions inside it are real decisions with real trade-offs.
A Captive Built For The Retiree Group
The pre-Medicare retirees come out of the active plan and into a self-funded group captive of their own. Claims are paid at cost below the stop-loss deductible, with no markup; catastrophic risk transfers to an A-rated, size XV stop-loss carrier; and participating employers share in the captive’s underwriting gains. Pooling at the captive layer is what rewards a good year and absorbs a bad one, which a single small retiree group on its own cannot do.
Priced Off Medicare, Not Off A Network Discount
Retiree costs are benchmarked to Medicare rather than to a commercial PPO discount — targeting 140 to 150 percent of Medicare for facilities and 120 to 130 percent for physicians. The network is a choice: the plan can keep a PPO network, or drop the network entirely and price through a reference-based pricing vendor, which is the cheaper of the two and the one with a trade-off we will name rather than bury — no network means balance-billing exposure has to be managed. Either way the plan can be customized or duplicated so what a retiree carries looks like what they had.
Where Reference-Based Pricing Fits
On an active plan we advise on reference-based pricing case by case and take no blanket position on it. Inside the retiree captive it is not a theory — it is the pricing mechanism, placed as part of the arrangement. That is a deliberate distinction, and it is worth understanding which of the two conversations you are actually having.
Keep The Sponsorship Role Or Hand It Over
This is a choice, not an automatic feature. An employer can stay the ERISA plan sponsor and keep the captive economics, or transfer the sponsorship role to a sponsored trust. Where it transfers, the trust or VEBA becomes the applicant and policyholder, deals with the carrier, arranges administration and collects premiums from retirees. VEBA status for the retiree group also permits a tax-free vehicle for participant contributions.
What A Retiree-Only Plan Is Free To Do
A group health plan with fewer than two participants who are current employees on the first day of the plan year falls outside ERISA Part 7 and the market reforms the Internal Revenue Code carries with it — no annual or lifetime dollar limit rule, no preventive services mandate, no dependent coverage to twenty-six, no ninety-day waiting period limit. That design freedom is a large part of why a retiree plan can be built differently from the active one. The genetic information provisions and the Newborns’ Act still apply.
Offering Coverage And Offering Money Are Different Answers
A former employee who may enroll in retiree coverage but does not is treated as having minimum essential coverage only for the months actually enrolled. So a pre-Medicare retiree who declines is still able to claim a premium tax credit on the Marketplace, and for a modestly paid early retiree that credit can be worth more than a seat on the plan. Enrollment is what forfeits it. Before you move a population, that arithmetic should be run for the people in it, not for the group in aggregate.
How a group health captive is structured →
Finding the pre-Medicare retirees who already qualify for Medicare →
Medicare pays first. What we place sits on top of it.
Most post-sixty-five retiree plans are active-plan designs with a coordination clause bolted on, paying for coverage Medicare already provides. The alternative is a plan built from the start to be the second payer.
Medicare Pays First
For an active employee aged sixty-five or over at an employer with twenty or more employees, the group plan is primary and Medicare is secondary. A retiree has no current employment status, so the order reverses: Medicare pays first and the retiree plan pays second. Every sensible post-sixty-five design follows from that sentence, and a plan drafted for primary coverage is paying for risk it no longer carries.
A Group Indemnity Plan On Top Of Medicare
What we place for Medicare-eligible retirees is a fully insured group indemnity plan that supplements Medicare, with access to any provider or hospital that accepts Medicare. Because it sits on top of Medicare rather than replacing it, there is no network to check and no referral question — if Medicare is accepted, the plan follows.
The Trust Holds The Plan
Where the sponsorship role is transferred, the trust or VEBA is the applicant and policyholder. It communicates with the carrier, arranges the plan’s administration, collects and pays premiums and runs the rest of the plan. The employer can still contribute toward the cost, currently or pre-funded, or not at all. This model has been in use for post-sixty-five retirees since 2008.
Ask About The Drug Coverage First
Prescription coverage is the part of a retiree program most often waved through, and it is the part with a federal obligation attached. Whoever ends up holding the plan, the creditable-coverage question has to be answered in writing before anything moves, because telling a retiree their coverage is creditable when it is not is how they end up with a lifetime Part D penalty. We ask for that answer on your behalf rather than assuming it.
Disability And Kidney Failure Change The Answer
Two exceptions bite. For someone entitled to Medicare on disability, the group plan is primary only where the employer has at least one hundred employees. For end-stage renal disease, the group plan pays primary for up to thirty months regardless of employer size and regardless of current employment status — retirees included. One dialysis claimant in a small retiree group is a thirty-month exposure most sponsors have never priced.
What The Law Allows You To Do Here
An employer may not offer a Medicare-eligible individual an incentive to drop coverage that would be primary to Medicare. Retiree coverage is secondary, which is why the retiree conversation is a different conversation from the active one — and separately, age discrimination rules carry an express exemption for coordinating retiree health benefits with Medicare eligibility. That exemption is the legal ground the whole post-sixty-five design stands on, and it is worth knowing it is there.
A retiree promise is a number on the balance sheet, whether or not anyone has measured it.
Public employers report it under GASB. Private employers accrue it under their own accounting standard. Either way the obligation exists from the day the promise is made, and how it is reported afterward is a question of fact about your plan documents and your transaction.
What GASB 75 Requires
Governmental employers recognize the net liability for postemployment benefits other than pensions on the face of the financial statements, not in a footnote. It took effect for fiscal years beginning after June 15, 2017, and it replaced Statements 45 and 57. For a school district or a municipality, that changed retiree health from a budget line into a reported number that rating agencies, unions and the local paper can all read.
GASB 74 Is The Plan Side
The companion standard covers the OPEB plan itself where benefits are administered through a qualifying trust, and it took effect a year earlier, for fiscal years beginning after June 15, 2016. It replaced Statement 43. The distinction matters in practice because the plan report and the employer report are prepared on different timetables, and the numbers have to reconcile.
The Levers That Move The Number
An actuary measures the liability; an actuary does not decide it. What decides it are benefits decisions: who is eligible and after how many years of service, whether the promise is a defined benefit or a defined dollar subsidy, whether coverage ends at Medicare eligibility, whether the group is closed to new hires, how the post-sixty-five design coordinates, and whether the sponsorship role stays with you or moves to a trust. Each is a lever, and each has a cost somewhere else.
How we work with public employers →
We do not tell clients what a change in structure will do to their reported liability. That determination belongs to your auditor and your actuary, on your facts, and we will work with them rather than around them.
The failures are administrative, and they are the same six every time.
None of these are exotic. Every one of them is found by reading the plan document against the census and the carrier file, which is the first thing we do.
The Plan Was Never Actually Separated
The retiree-only exception is counted per plan on the first day of the plan year. If one document covers actives and retirees, there is no exception, and the plan has been operating for years on a freedom it does not have.
The Part D Notice Rode Along With Open Enrollment
October 15 is rarely anyone’s renewal date, and the notice has no size exemption, so a small employer with two Medicare-eligible retirees owes it exactly as a large one does. The disclosure to CMS is a second clock tied to the plan year, not the same clock.
Nobody Told The Retiree About Part B
Your retiree plan is paying second. If the retiree skipped Part B because the group coverage felt like enough, the primary payer the plan is coordinating against does not exist, and the retiree absorbs the difference plus a late-enrollment penalty for as long as they are enrolled.
A Re-Employed Retiree Flips The Order Back
Bring a retiree back part-time and they have current employment status again, which makes the group plan primary once more. Claims paid in the wrong order get recovered, and the recovery arrives long after the budget year has closed.
Eligibility Never Followed Them Into Retirement
Retirees fall out of the payroll feed, which is where most eligibility data comes from. The result is retirees still on the carrier file who should not be, retirees off it who should be, and billing that reconciles to neither.
The Promise Is In A Document Nobody Has Read
A retiree-only plan is still an ERISA plan. The summary plan description obligation survives the exception, and covered retirees count as participants for the hundred-participant test that decides whether a Form 5500 is owed — covered dependents do not. Most sponsors have never checked which side of that line they are on.
The compliance calendar, with the dates →
General information about retiree medical benefits, not legal or tax advice. Plan-specific questions belong with ERISA counsel, and we will bring them in.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
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