18
HEALTH BENEFITS UPDATE
NEW JERSEY COPS ■ JULY 2014
Risk pooling and your health benefits
Risk pooling is a basic principle in the insurance
industry that assigns a group of people together in
a plan in order to spread the entire risk of that
group to a certain type of people and determine
their rates.
For instance, in the State Health Benefit Plan,
there are two main groups: active and retirees. The
retirees’ plan is set by rates that are divided by
Medicare retirees and non-Medicare, or early
retirees. This has a disparate impact on the cost of
each plan, and is something that each of our members, when making plans to retire, should be aware of.
Taking into account that the determination of contributions
under Chapter 78 into retirement is yet to be determined, it is
something that each member who is contemplating retirement has
to put on his or her radar as the cost of health benefits – which
nationally trends from 8-to-12 percent in increases yearly – coupled
with the lack of any cost of living adjustment in the near future, can
financially devastate a pension.
A case in point is that of a family on NJ Direct 10 with a prescription plan is $2,200.39 per month, totaling $26,404.68 per year.
The same family with no member of the family covered by
Medicare, for a plan with much higher prescription co-pays, pays
$2,844.40 per month or $34,132.80 per year. The increase in this situation is 29.3 percent. This is only as a result of the early retirees up
to Medicare age being shifted to another group. If you extrapolate
an 8-to-12 percent annual increase and a contribution to these premiums, it is a concern for retirement.
Kevin C.
Lyons
The risk pooling issue is used by several Health Insurance
Funds (HIFs), which are generally run by a broker who is paid
handsomely for his or her service, to shift costs on to the active
employee. I have seen plans that have exceeded $47,000 per
year for a family PPO type plan. One of the disadvantages of
having one risk pool for a group is that the early retirees, who
are not subsidized by Medicare, traditionally have a higher cost
per person, which is shifted on to the healthier people. This is
advantageous for the employer with regards to Chapter 78,
since most retirees don’t contribute to their health premiums
while the actives are paying up to one third of the premiums.
Finally, it is important to remember that it is extremely
important to get your credits in with Social Security for
Medicare. If you were hired after the early 1980s, you more likely than not pay at least the Medicare portion of the Social Security tax. As many departments in our state do not contribute
to Social Security, many of our members in the past did not
have the quarters in to qualify for Medicare Part A and B, which
are mandatory for many plans including the State Health Benefits Plan. Part B alone will cost $104.90 per person per month,
but Part A can cost up to $426 per month. Please check your
Social Security account to make sure you qualify if your
employer does not participate.
As always, take ownership in your future and check to see
where you stand so you can make healthy financial choices for
retirement. d
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