NOTE: The following piece is intended for current and former employees of Lockheed Martin Corporation. Our founder, Jeff Jones, is a former Lockheed Martin engineer, and we at Cypress are privileged to work with a number of Lockheed employees and alumni. If you are interested in learning more about our services, please Contact Us or Schedule a Meeting.

Health care continues to be one of the largest expenses that most Americans will face in their retirement years. Increased life expectancy, rising costs, and a trend toward early retirement (prior to the Medicare-eligible age of 65) are just a few reasons that health-related expenses can quickly become a central issue when planning for a stress-free retirement.

With the health insurance landscape frequently changing, it’s important to fully understand your options and carefully plan your healthcare decisions before you launch into retirement. Fortunately, Lockheed Martin has partnered with benefits administrator Via Benefits, and many of the questions you may have about Medicare, supplemental insurance, and plan options are answered on their website here: https://my.viabenefits.com/lockheedmartin/. Their main home page includes a helpful link to “Review the Lockheed Martin Retiree Presentation," which is specifically geared to help point retirees in the right direction.

To further assist you in this decision process, below are some common questions and thoughtful strategies to consider.

What action steps can I take prior to retiring?

Recently, the company switched to a high-deductible health insurance plan ("HDHP"), which allows for a tax-advantaged savings program called a Health Savings Account (HSA). If your budget allows, we strongly recommend contributing as much as possible each year to this account. The maximum amounts for 2021 are as follows:

Contributions into this account are tax-deductible, similar to a pre-tax 401(k). These funds can also be invested within the Benefit Wallet platform. Although these funds can be used to reimburse any out-of-pocket healthcare costs while working, they do not need to be spent in the year of contribution—any amount not used in the current year can continue to grow indefinitely, and can eventually be used in retirement to cover future health care expenses. The icing on the cake is that qualified withdrawals from these accounts are also tax-free (similar to a 529 plan or Roth IRA), which is not the case for 401(k) accounts or traditional IRAs. If used properly, HSAs are the most tax-advantaged accounts available, and you should seek to use them as heavily as possible.

What are my health insurance options prior to reaching Medicare age (65)?

Generally, if you are seeking to retire prior to age 65, there are four health insurance options to compare and consider:

1. COBRA – This is a Federally mandated program that allows a retiree the ability to continue participating in their employer-provided health plan for up to 18 months after separating from service. The employee is responsible for the full cost of the preferable group rate (plus a 2% administrative fee), as this is unsubsidized by the company.

2. LMHealthWorks for retirees – Both COBRA and LMHealthWorks are administered identically to the employee health plan, but unlike COBRA, LMHealthWorks coverage can last through to age 65. Depending on your years of “Retiree Medical Contribution Service”, the premium you must pay will possibly be subsidized by the company. A firm estimate of these costs for the three plan levels (Broad Network Plan 1, 2 and 3) can be found at the end of your LM Pension Estimate document.

3. Private Healthcare Insurance Marketplace (Affordable Care Act or ACA) – The HealthCare.gov marketplace can quickly show you a variety of plans for private insurance companies serving your geographic area. There are four tiers (platinum, gold, silver and bronze), and each tier requires the insured to cover a different portion of medical care expenses, in addition to the basic monthly premiums. High-premium plans will cover the largest portion of bills, leaving you with the lowest out-of-pocket costs. These plans can also offer a subsidy from the Federal government, especially if your post-retirement income falls below a certain threshold (400% of the Federal Poverty Level). For 2021, that limit is $51,520 for an individual and $69,680 for a married couple, per HealthCare.gov.

You will need to enter your personal information on the HealthCare.gov website in order to see the actual plans and prices, including a potential income-based subsidy. In general, if you can keep your income low enough to qualify for a subsidy, these plans have been shown to provide a better value than a typical Lockheed Martin retiree option. However, if your pension, Social Security, and other taxable income will push you over this income threshold, then it is likely that the Lockheed Martin retiree option would be more cost-effective. (Note: due to recently passed COVID relief legislation, the ACA "subsidy cliff" at 400% of the Federal Poverty Level has been removed for tax years 2021 and 2022. This may make subsidies available to more retirees, but possibly only for a short period of time. Therefore, your subsidy for next year may appear higher on the HealthCare.gov site than it otherwise would be, and costs may be higher in future years, barring a further extension of the COVID-era suspension of the "subsidy cliff".)

4. Other subsidized group insurance plans: Finally, if you have access (either personally or via your spouse) to other employer-subsidized health plans—active employee plans or Tricare military, for example—then this subsidized plan will likely be a very cost-effective option through to age 65.

What are my health insurance options after reaching age 65?

If you are retired and reach age 65, you will begin receiving Medicare benefits. More detailed information on this government-sponsored program can be found on Medicare.gov or within the Via Benefits Lockheed Martin Presentation mentioned above. Medicare Part A (Hospital Insurance) has no premium, and Part B (Medical Insurance) has a standard premium of $148.50 per month (increasing to $170.10 in 2022). Beyond these two programs, most retirees choose to layer on additional insurance, either via an HMO-style plan called “Medicare Advantage”, or via a separate supplemental insurance policy called “Medigap”. We strongly recommend that you consult with a Via Benefits insurance broker to assist with policy selection, since there are no fees for their service.

What is the subsidy that Lockheed Martin provides to eligible retirees over 65?

Most Lockheed employees who have spent a large portion of their careers with the company are eligible to receive an annual credit toward their medical expenses. The program is technically called a Health Reimbursement Arrangement (HRA), and the annual credit is generally $900 for each participating retiree and participating spouse. Benefit credits that are not used by participants in each plan year are carried over and may be used in subsequent years throughout each participant's lifetime. The $900 limit is typically easy to hit, as it can be applied toward medical, prescription drug, dental and vision insurance premiums, as well as other out-of-pocket healthcare expenses. You would pay the bill first, and the Lockheed HRA will subsequently reimburse you, tax-free. The only way to access this reimbursement account is to enroll in a medical plan through Via Benefits or have military-sponsored Tricare For Life.

While the decisions you make regarding health care in retirement are incredibly important, Lockheed Martin has done a fantastic job providing options for their employees both prior to and during their retirement years. As we mentioned before, it's important to fully understand all of your options prior to making any benefit elections. At Cypress, we have helped a number of Lockheed employees to narrow in on the best choices for their family. If you'd like to discuss your own options regarding your retiree health insurance, Please Click Here to schedule a complimentary introductory call with a fiduciary financial planner from Cypress Financial Planning.