MERITY:

Colleges Test New Health Program: School employees will be able to pre-fund supplemental coverage for use in retirement. (Debora Vrana, May 25, 2005, LA Times)

The latest invention to come out of American universities has nothing to do with science or technology. Instead, it's a new kind of health insurance.

Worried that many employees were delaying retirement simply to keep their medical coverage, a group of colleges and universities has created a plan that lets both workers and employers contribute to a fund that can be tapped after retirement for medical expenses and for insurance to supplement Medicare.

Though criticized by some, the Emeriti Program — a defined-contribution plan similar in some ways to a 401(k) account — may some day be adopted by other types of employers, say those who run it.

Twenty-nine colleges and universities, including Pepperdine University in Malibu, have enrolled in the plan and an additional 200, including Harvard University, are considering it. The program will start July 1 with an estimated 3,000 individual participants.

Helping run the plan are two corporate giants. Boston-based Fidelity Investments, the nation's largest mutual fund, will provide investment options and keep the records. Aetna Inc., the third-biggest U.S. health insurer, will underwrite the insurance that members buy after retirement to supplement Medicare.

"This is brand new — you're pre-funding your supplemental retirement coverage," said William Custer, the director of health services research at Georgia State University in Atlanta, which has not joined the plan.

Employees who enroll in the plan can contribute an unlimited amount each year in after-tax dollars and employers can choose their own formula for adding to the employee's contributions. Fidelity then puts the money into its Freedom Fund program, which includes so-called lifecycle funds that invest more conservatively as the person ages. Investment gains and payouts are tax free.

After retirement, the employee enrolls in Medicare, but gets supplemental health insurance from Aetna. The insurance would cover a retiree no matter where they live in the country, even if they split their time between two homes, said Wendy Morphew, spokeswoman for Hartford, Conn.-based Aetna.

While educators hailed the program as a creative way to tackle rising healthcare costs in retirement, some critics call it a worrisome trend to shift more responsibility for those costs to employees.

Which is the main way to reintroduce market forces into health care and get costs under control.

Posted by Orrin Judd at May 25, 2005 8:49 AM