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Posted on August 1, 2008

“RHAs” and “IHAs”: Phony health care coverage for future retirees

In a recent column entitled “Americans need federal help with retirement,” Rep. John “Randy” Kuhl (R-NY) accurately describes a serious problem: increasingly, corporations are eliminating health care coverage for retirees. While 66% of companies offered retiree health insurance in 1988, only 33% did in 2007. Given the skyrocketing cost of health care, and corporations’ natural desire for cost containment, the trend can only be expected to continue. Today’s workers are therefore at serious risk of losing their health insurance coverage when they retire. Kuhl warns that

It is important to know that private sector employers are not required to promise retiree health benefits. For those employers who do offer retiree health benefits there are no federal laws that prevent them from cutting or eliminating those benefits.

This situation is a recipe for disaster for many future retirees. As Kuhl eloquently puts it:

The dream held by most Americans is that working hard and putting money aside will provide them with a retirement full of vacations, relaxation, and time with their family. More and more of those dreams are being shattered by the realities of ever rising costs of health care. We cannot allow seniors to be forced to choose between food and medicine or a doctor’s visit and a birthday present for their grandchildren.

To solve the problem, Kuhl proposes the creation of “Retirement Health Accounts” (“RHAs”) and “Individual Health Accounts” (“IHAs”). Like IRAs, these accounts would allow future retirees to invest pre-tax money, which would be allowed to grow tax-deferred. Later, during their retirement years, account holders would be able to dip into the accounts to pay for health care costs not covered by Medicare. Kuhl describes the benefits of his bill in glowing terms:

My legislation works to ensure that Americans are financially prepared for the health care costs they will face during retirement. This legislation will protect retirees from falling victim to the rising cost of health care and offer employers the chance to help their employee’s future…
This bill creates a long term plan that gives Americans the tools they need to ensure that they are truly prepared for the best years of their lives.

Sorry, Rep. Kuhl, but this is BS—and you know it.

As Kuhl himself admits, the gap created when retirees are deprived of health insurance is staggering:

Medicare has many holes in coverage and they may have to pay deductibles, coinsurance, and copayments out-of-pocket. Fidelity Investments estimates that a 65-yearold couple without employer-sponsored retiree healthcare coverage will need $225,000 to cover healthcare costs in retirement, 4.7 percent more than the 2007 estimate. In addition, a 65-year-old worker earning $60,000 today and interested in retiring in the next 12 months should expect to use approximately 50 percent of their Social Security benefits to pay for their healthcare expenses in the next 17 to 20 years.

Putting a little money away while you’re working, even tax-sheltered money, isn’t going to fill this gap. What’s more, many, if not most future retirees are already struggling with high health care costs, crushing mortgage debt, stagnating wages, increasing food and fuel costs, and the threat of unemployment. Few can afford to set enough aside to create a special fund of hundreds of thousands of dollars reserved for health care alone.

What tomorrow’s retirees need isn’t a stack of blank deposit slips that they can use to set a few bucks aside when they have them. It’s real health insurance without loopholes and exceptions. Judging by his voting record, this is exactly what Rep. Kuhl doesn’t want to give us.

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