Headlines across the country warn seniors of the rising cost of prescription drugs. Politicians argue about national health coverage and managed care. The federal government grants its employees access to long-term care. Where does that leave you and your county employees?

The federal government has provided special consideration to government employees to set aside money tax-free in order to provide for their future health care needs after employment ends. These Post Employment Health Care Plans (PEHP) allow the government employer to set aside funds in a trust account for each employee. When the employee leaves employment, he or she may use the accumulated funds to pay for any qualified medical expense, including health care premiums, prescription drugs, hospitalization and long term care.

The NACo Financial Services Center and Nationwide Retirement Solutions (NRS) designed a PEHP program in 1996, and more than 185 local governments have adopted such plans for their employees. This year NRS simplified the plan. Now a county may contribute unused sick leave or vacation pay to the accounts without making a continuing contribution from payroll. NRS will be lowering the asset management fees by 47 percent and has instituted a minimal annual fee to pay for the administration of the program.

How does the plan work? A county agrees to set up the plan on behalf of a specific employee group or for all county employees. The county decides how to fund the accounts. The county may set aside a percent of payroll for each employee, a set dollar amount per pay period for each employee, a portion of unused sick or vacation leave for each employee, or a combination of any of these. In some counties, over-funded retirement systems have made an initial contribution to the accounts, and then a percentage of payroll has been used to sustain the funds.

After the account is set up, each employee determines how to invest his or her funds, selecting from a menu of investment options the program provides. The accounts accumulate both contributions and earnings. When the employee leaves county employment, he or she may elect to access these funds to pay for specific health-related costs. The former employee submits claims to NRS and reimbursements are made for the health care expenses incurred. The funds are also available for use by the employee’s spouse, dependent children and dependent adults in the household.

Advantages exist for both the employer and the employee. The employer contributes money FICA-free to the individual accounts. The employer gains a definable benefit that will assist the employee after employment. This program can assist with early retirement incentives as well.

Employees gain a health benefit that can help link them to Medicare or can be used to pay for continuing health insurance after retirement and before Medicare kicks in. Employees also create a hedge against long-term care costs. All of these benefits are tax-free to employees.

Both employers and labor organizations recognize the need to plan ahead in order to offset the continuing rise in the cost of health care. A PEHP program is one of a number of long-term planning tools that employers and employees should use to secure the retirement futures of our nation’s county workers.

For more information, contact John Piper at Nationwide Retirement Solutions toll-free at 1-877/313-0040 or Steve Swendiman at NACo Financial Services Center, 202/942-4282.