By 2030, all Baby Boomers in the U.S.—those born between 1946 and 1964—will have turned 65, with about 11,000 of them coming of age every day until then.¹ But as these workers make the transition to retirement, one concern that’s top of mind for many is how they will obtain and pay for health care. “People are generally a little uncomfortable thinking about health care in retirement because they are going into the unknown, it’s complex, and people fear doing it wrong and paying huge penalties,” one benefits leader said. “It’s important to find a way that makes it simple for people to understand and less scary.”

When employees don’t see a sustainable path to pay for health costs, they may delay retirement.² Nearly one in five reported that they had done so to keep their insurance, which can hinder new recruitment and increase overall employer health costs.³ The question for employers is no longer why they should support employees in the transition to retirement, but how they can best smooth the path forward. Here, we’ll examine the challenges workers face as they enter this new phase of life, and the ways that employers can help these employees make a soft landing into retirement.

Retiree health costs are often more than people realize

Fidelity’s retiree health care cost estimate revealed that a 65-year-old retiring in 2024 can expect to spend an average of $165,000 in health care and medical expenses throughout retirement.⁴  Unfortunately, employees are in for a harsh reality check. When asked how much they think they will spend on health care in retirement, 59% of employees ages 55 and older said less than $150,000 for a couple, or $75,000 for a single person—a gap of $90,000 between employees’ expectations and the reality of average actual costs.⁵

Employees aren’t prepared to manage retiree health costs and coverage

As fewer employers offer health benefits to former employees, employees cite a variety of ways they plan to pay for care in retirement—including Medicare, personal savings, and retirement accounts—but these options could be insufficient or unsustainable in the long term. And more than a quarter (27%) of employees say they are “not sure” how they will cover health-related expenses in retirement.⁶

While 31% of workers plan to leverage Medicare to pay for health costs in retirement,⁷ retirees are largely on their own to navigate the complex web of coverage options. The average Medicare beneficiary has access to more than 40 Medicare Advantage plans—leaving many unsure about where to start.⁸ And employers aren’t stepping in to provide the guidance and support tools people need to make the transition from their employer-sponsored insurance. Only 13% of retirees said that their employer helped them compare differences between their employer’s coverage and Medicare coverage, and just 14% said their employer offered any assistance selecting a plan.⁹ Simply put, most Americans are on their own to figure out how Medicare coverage works and the many different ways to obtain coverage.  

Employers have an opportunity to be a trusted source for retirement preparedness 

Nearly all (90%) of benefits leaders believe their employees would feel very or somewhat favorably toward their company if they received their employer’s help preparing for health costs in retirement.¹⁰ In an interview with Fidelity, one benefits leader said, “Helping people prepare for health care in retirement is something that I see as a gap in most organizations.” With the “silver tsunami” of Baby Boomers retiring, now is the time for employers to embrace this role in employees’ retirement readiness.

The problem is that even when employers offer resources for retirement preparation, the message may not be getting through. For example, 51% of benefit leaders Fidelity surveyed said their organization helps employees understand the most favorable ways to pay for health care in retirement, but only 13% of retirees said their employer offered this assistance.¹¹ Employers can do more to close this awareness gap and incorporate health care cost planning into overall financial wellness efforts.

4 ways to help employees prepare for health care costs in retirement

1. Provide health benefit accounts to help employees build retirement health savings: Consider offering health savings account (HSA)-eligible health plans that employees can use to save for future health care costs, including premiums for Medicare Parts B and D and for Medicare Advantage plans.¹² But keep in mind that many employees don’t understand the HSA as well as they understand other benefit accounts. In fact, employees who don’t have an HSA were twice as likely to say they were aware of the features and benefits of a 401(k) than an HSA.¹³ Innovative employers can use employees’ basic understanding of 401(k) plans to their advantage by positioning the HSA as a “benefit twin” to their retirement account. Many potential attributes of an HSA benefit—such as payroll deductions, employer matching, and investment options— are concepts employees already understand in the context of their retirement savings. Lean on existing employee knowledge of the 401(k) by using similar language and engagement techniques for the HSA.
   
   
2. Develop a road map of insurance choices for employees to bridge to Medicare: Employees retiring before 65—the age of Medicare eligibility—must find ways to bridge the gap in coverage. Employers can detail the many options available, including spousal health plans, COBRA, and health insurance exchange plans which can include coverage subsidies. Consider providing decision support tools that employees can use to evaluate the best path forward.
   
   
3. Offer support and tools to help employees evaluate their Medicare options: There are a range of ways employers can support employees, starting with small wins like digital reminders and tools that can nudge employees to start planning. Employers can also consider providing more robust educational support, such as interactive workshops, webinars, or other educational resources. Offering assessment tools can help employees knowledgably compare Medicare plan options. More high-touch services could include customized consulting services that offer one-on-one support in selecting the best Medicare option after reviewing the employee’s specific medical conditions or prescriptions.
   
   
4. Consider additional ways to educate and support employees as they near retirement: Expanding the scope of employee assistance programs (EAPs) could provide services to smooth the transition to retirement, including preparing employees to manage expenses or selecting retirement communities. Additionally, many EAPs can connect retirees to specialized legal and financial services that focus on retirement.¹⁴ Finally, employees may need mental health resources and care to cope with the overwhelm and stress associated with the transition to retirement. Consider ways to expand the scope of an EAP with an emphasis on mental health.

Conclusion