The Importance of Portable Voluntary Benefits for Older Employees

By Ted Ruiz, CFP®

As we age, our healthcare needs increase significantly, and unfortunately, so do the associated costs. For employees nearing retirement, it’s crucial to consider their future financial preparedness for medical expenses. One valuable low-cost approach is offering portable voluntary benefits—low-cost benefits that employees can carry with them into retirement. These benefits can provide financial support when traditional coverage, like Medicare, falls short. With many retirees facing limited income and rising healthcare expenses, portable voluntary benefits offer a flexible, affordable solution to help fill gaps in medical coverage and provide peace of mind.

Growing Medical Needs of Older Adults

The healthcare needs of individuals aged 65 and older are substantial. According to the Centers for Medicare & Medicaid Services (CMS), the average annual out-of-pocket healthcare costs for those on Medicare is around $5,000, and the number rises with age and health status. Additionally, research from the National Council on Aging (NCOA) shows that 80% of older adults have at least one chronic condition, and 68% have two or more. These conditions, such as diabetes, hypertension, and arthritis, demand ongoing treatments, prescriptions, and sometimes surgeries, all of which add up to significant expenses.

While Medicare is a critical safety net, it does not cover everything. Standard Medicare plans generally cover about 80% of medical costs, leaving retirees responsible for the remaining 20%. For individuals facing long-term treatments or chronic conditions, this remaining cost can be a substantial financial burden. According to a study by the Employee Benefit Research Institute, nearly half of retirees are unprepared for the medical expenses they will face, making it clear that supplemental benefits are essential.

The Rising Costs of Health Care in Retirement

Healthcare costs have outpaced inflation over the past two decades, with retirees facing higher expenses than ever. Fidelity estimates that a 65-year-old couple retiring today will need an average of $315,000 to cover healthcare costs in retirement, excluding long-term care. Yet, as these costs climb, many are retiring with less income than expected. The Economic Policy Institute reports that nearly 50% of older Americans have no retirement savings, and many rely solely on Social Security, which provides an average monthly benefit of about $1,800 per retiree.

These financial constraints make it critical for older employees to secure benefits that they can carry into retirement without unaffordable premiums. However, after leaving the workforce, it can be challenging for retirees to obtain new insurance coverage due to age, pre-existing conditions, or prohibitive costs. Portable voluntary benefits can help address this gap by offering affordable, ongoing coverage options that older employees can maintain through retirement.

Why Portable Voluntary Benefits Are Essential for Retirees

Portable voluntary benefits are designed to address exactly these needs, helping retirees manage out-of-pocket medical expenses beyond what Medicare covers. Unlike traditional employer-provided benefits, which typically end when an employee retires, portable benefits remain with the individual, allowing them to use the coverage they secured while employed. 

This portability provides the following key advantages:

1. Continued Access to Affordable Coverage: Portable voluntary benefits allow retirees to maintain low-cost coverage even after they leave the workforce. For example, a retiree with a critical illness or hospital indemnity plan can use these benefits to receive cash payouts when they experience covered medical events, helping offset the additional expenses that come with aging.
2. Flexibility in Use: One of the most valuable aspects of portable voluntary benefits is the flexibility in how funds can be spent. Unlike traditional health insurance, which typically pays providers directly, these benefits often provide cash payouts to the insured, allowing retirees to decide how best to use the funds. They may apply the money to cover medical costs, copays, prescription drugs, or even non-medical expenses if needed.
3. Protection Against Limited Medicare Coverage: Medicare coverage has significant gaps, especially for expenses like long-term care, dental, and vision services. By maintaining portable benefits, retirees gain financial support for some of these needs without facing the high costs associated with standalone insurance plans later in life.
4. Availability Despite Health Conditions: Obtaining new insurance can be challenging after retirement, particularly for those with pre-existing conditions or chronic illnesses. Voluntary benefits offered through employers are typically guaranteed issue, meaning they are available to employees regardless of their health status. Once secured, these benefits remain in force, making them invaluable as retirees face increasingly limited insurance options.

Statistics Supporting the Need for Portable Voluntary Benefits

Several statistics underscore the financial vulnerability many retirees face and the necessity of portable benefits:

• Income Disparities: Nearly half of all Americans over age 65 rely on Social Security for 90% or more of their income, a source that only replaces about 40% of pre-retirement income for average earners (Social Security Administration).
• Health Care Inflation: Health care costs have risen 3% to 5% per year, with healthcare inflation consistently outpacing general inflation (Bureau of Labor Statistics).
• Unmet Medical Needs: A 2022 Commonwealth Fund survey found that 23% of older adults on Medicare reported skipping necessary care because of costs.

Conclusion

With increasing healthcare costs and a significant portion of income dedicated to medical expenses, retirees face a challenging financial landscape. Portable voluntary benefits offer a vital solution, providing retirees with continued, low-cost coverage that helps bridge gaps in Medicare and other insurance. By allowing older employees to carry these benefits into retirement, employers can support their workforce beyond their working years, empowering them to face medical expenses with greater security and financial freedom.