Retirees who are not yet eligible for Medicare may have a plan sponsored by their former employer as their primary source of health coverage. If the retiree is enrolled in Medicare, the retiree benefits serve as a secondary source of coverage, supplementing Medicare by reducing cost-sharing or covering benefits like prescription drugs.
For pre-Medicare retirees with employer-sponsored coverage, the Affordable Care Act may provide new protections. If the plan in which the retirees are enrolled also covers active workers, the consumer protections will apply, including limits on out-of-pocket costs and coverage of recommended preventive services without cost-sharing. However, if the plan only covers retirees, as is more often the case, the coverage does not have to comply with the Affordable Care Act consumer protections. Retiree health coverage is considered minimum essential coverage, which means no individual mandate penalty applies to those who have retiree health benefits. However, individuals with an offer of retiree health benefits are only eligible for the premium tax credit as long as they are not enrolled in retiree coverage.