Retiree Health Insurance Benefits Are Disappearing: What the Data Shows and How Workers Are Filling the Gap

In 1988, 66% of large employers that offered health benefits also covered their retirees. By 2024, that share was 24%, according to KFF’s annual Employer Health Benefits Survey. Workers who built retirement plans around the idea that an employer would carry them to Medicare have had to recalibrate. For most, that happens in their 50s, when there’s less time left to plan.

What Drove the Decline

An accounting rule set things in motion. In December 1990, the Financial Accounting Standards Board issued FAS 106. It required companies to record retiree health liabilities on their financial statements, starting with fiscal years after December 15, 1992. Before that, most companies simply paid retiree claims as they came in. FAS 106 made the long-term promise visible. The Government Accountability Office estimated the national retiree health liability at $227 billion as of 1988 and about $412 billion by 1993. Companies told benefit consultants that the hit to reported income and shareholder equity was one reason they cut retiree benefits. The Employee Benefit Research Institute later called FAS 106 one of the most important factors, if not the single most important, behind the decline.

Health care costs did the rest. Early retirees are especially expensive. Before Medicare kicks in, employers paid three to four times more for their care than for retirees on Medicare. Medical costs also kept rising faster than general inflation.

The ACA added another push. Even before the marketplaces opened in 2014, many employers told researchers they expected the exchanges to become a workable option for retirees.

Who Still Offers Retiree Coverage

Retiree benefits have lasted longest where they’re hardest to take away. In KFF’s 2024 survey, among large employers offering health benefits:

• Public employers were far more likely to offer retiree coverage than private for-profit companies, 65% versus 10%.

• Firms with union workers were more likely than non-union firms, 47% versus 17%.

• Very large firms with 1,000 or more workers were more likely than firms with 200 to 999 workers, 36% versus 21%.

• Firms with older workforces were more likely, too, 29% versus 20%.

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Even where coverage survives, it’s changing. Among large employers that still cover Medicare-age retirees, 56% now do it at least partly through a Medicare Advantage plan. That share more than doubled from 26% in 2017.

What the Fidelity Estimate Actually Includes

Fidelity estimates that a single 65-year-old retiring in 2026 will spend an average of $185,500 on health care over retirement, up 7.5% from the year before. The figure is after taxes and assumes no employer retiree coverage. It breaks down this way:

• Medicare Part B and Part D premiums: 45%

• Other medical costs: 48%, mostly Medicare’s deductibles, copays, and coinsurance, plus some services Medicare doesn’t cover, like vision and hearing exams

• Out-of-pocket prescription costs: 7%

The estimate leaves out over-the-counter medications, most dental care, and long-term care. It’s built on Original Medicare plus Part D, so someone who buys a Medigap policy or picks a Medicare Advantage plan will see a different mix of costs. It also assumes coverage starts at 65. Anyone who retires earlier has to plan for the pre-Medicare years separately, and that’s where most of the risk sits.

The ACA Marketplace as the Default Bridge

Workers who retire before 65 without employer coverage usually end up on the ACA marketplace. The challenge is managing income, because premium tax credits shrink as income rises. The marketplace measures income as modified adjusted gross income (MAGI), and different retirement income sources count differently:

• Traditional IRA and 401(k) withdrawals count toward MAGI.

• Qualified Roth distributions don’t count.

• Social Security counts in full, taxable and non-taxable portions alike. This is the piece most people get wrong, and it’s one reason many early retirees wait to claim it.

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That makes Roth savings valuable in the years before Medicare. A retiree living on Roth money can keep MAGI low enough to qualify for help, while drawing the same amount from a traditional IRA could push them past the limit. Timing matters for Roth conversions, too. A conversion counts as income in the year it happens, so converting during the subsidy years raises MAGI right when it hurts most. The time to build Roth balances is during the working years.

The stakes went up in 2026. Premium tax credits now run only from 100% to 400% of the federal poverty level, with nothing above that line. For 2026 coverage, 400% works out to $62,600 for a single person and $84,600 for a couple. Just under the line, households are expected to pay 9.96% of income toward a benchmark Silver plan. Just over it, they pay full price.

Most financial advisors and most health insurance brokers treat retirement income and health coverage as separate conversations. For someone retiring early without employer coverage, they’re one decision.

Sources

1. KFF. “Medicare Advantage Has Become More Popular Among the Shrinking Share of Employers That Offer Retiree Health Benefits.” November 18, 2024. https://www.kff.org/medicare/medicare-advantage-has-become-more-popular-among-the-shrinking-share-of-employers-that-offer-retiree-health-benefits/

2. KFF. “2024 Employer Health Benefits Survey,” Section 14: Retiree Health Benefits. October 9, 2024. https://www.kff.org/health-costs/2024-employer-health-benefits-survey/#c5b2c178-14c9-4f3c-8ad7-cb12243b123a

3. U.S. General Accounting Office. “Retiree Health Plans: Health Benefits Not Secure Under Employer-Based System” (HRD-93-125). July 9, 1993. https://www.gao.gov/assets/220/218200.pdf

4. Littler. “Fewer Employers are Offering Retiree Health Benefits, Report Finds” (summarizing EBRI Issue Brief No. 377). October 29, 2012. https://www.littler.com/news-analysis/asap/fewer-employers-are-offering-retiree-health-benefits-report-finds

5. Fidelity Investments. “Fidelity Investments Shares 25th Annual Retiree Health Care Cost Estimate.” July 21, 2026. https://newsroom.fidelity.com/pressreleases/fidelity-investments--shares-25th-annual-retiree-health-care-cost-estimate--highlighting-the-importa/S/0dd560b4-98cb-492e-bdec-f7168f97aede

6. HealthCare.gov. “What’s included as income.” https://www.healthcare.gov/income-and-household-information/income/

7. HealthCare.gov. “Federal poverty level (FPL).” https://www.healthcare.gov/glossary/federal-poverty-level-fpl/

8. Internal Revenue Service. Revenue Procedure 2025-25. https://www.irs.gov/pub/irs-drop/rp-25-25.pdf