University of Michigan Health Care Puzzle

Alex Potter, CFP®
5 days ago
6 min read

Updated: 3 days ago

Ask a room of University of Michigan employees what worries them most about retirement. It usually isn't the market. It isn't taxes. It's health care.

That makes sense. The retiree health benefit at the University of Michigan is genuinely good, but the rules are not intuitive. There are two cliffs and a service schedule buried in the fine print, and the retirement date you pick determines what they cost you. Here's the map.

Eligible to Retire Is Not the Same as Eligible for Benefits

There are two gates.

Gate one: 80 points. For retirement on or after January 1, 2021, you need 80 points. Points equal your age plus your years of continuous eligible service. 60 years old with 20 years of service is 80 points. So is 55 with 25.

Gate two: 10 years of service. You also need at least 10 continuous years as a regular or supplemental faculty or staff member with a 50% or greater appointment. This gate applies to retiring at all. Without it, leaving the University is a termination, not a retirement, and there is no retiree health plan to keep. Part-time employees (50% to 79.9%) accrue 0.8 years of credit per calendar year, so it takes them longer.

Most long-tenured employees clear both gates without thinking about it. Second career hires should double check.

The Age-62 Cliff

If you retire before age 62 and your service date is on or after July 1, 1988, you pay the full cost of your retiree health coverage through the month you turn 62. The University contribution does not start until 62.

That is the most important rule in this post.

Here's what it looks like in real dollars. Elena is a hypothetical 58-year-old researcher with 22 years of service. She has 80 points and can retire today. If she does, she keeps her health plan but pays the entire premium herself for four years. At the University's published 2026 full-cost rates, that's roughly $10,500 to $13,600 per year for single coverage, or $21,000 to $27,000 per year if she covers her spouse. Dental, vision, and life are also full cost. Cover a spouse for four years and this becomes a six-figure decision.

Retiring before 62 is not automatically wrong. Some people bridge the gap with savings, a spouse's employer plan, or the ACA marketplace.

The Contribution Tiers: More Years of Service, Bigger Subsidy

At 62, the University contribution starts. How much depends on your service date and your years of service.

Service date before January 1, 2013 (retiring on or after January 1, 2021):

10 to 12 years of service: 40% University contribution (25% for dependents)
12 to 14 years: 48% (30%)
14 to 16 years: 56% (35%)
16 to 18 years: 64% (40%)
18 to 20 years: 72% (45%)
20 or more years: 80% (50%)

Service date on or after January 1, 2013: the schedule runs lower. It starts at 34% (13% for dependents) at 10 to 12 years and maxes out at 68% (26% for dependents) at 20 or more years.

Every year of service between 10 and 20 changes the University's share of your health premiums for the rest of your life. "One more year" is often worth thousands of dollars per year, every year of retirement.

Ask HR to run your exact numbers based on your service date and planned retirement date.

The Medicare Hand-Off at 65

This is the second cliff, and it has a hard deadline.

University of Michigan requires every Medicare-eligible retiree and covered dependent to enroll in Medicare Part A and Part B when first eligible. Miss it and you can be disenrolled from your retiree health plan. On top of that, CMS charges a late-enrollment penalty of 10% per year for each year you could have been enrolled in Part B and weren't. That penalty follows you.

Timing: If you're already retired and turning 65, complete your enrollment paperwork about 90 days before your 65th birthday. If you retire at 65 or older, apply for Medicare in the month you retire (or the month before, if you retire on the first). Once you're enrolled, your University retiree coverage continues through the University's Medicare Advantage plan options.

Set two calendar reminders. A missed deadline here can cost you your health plan.

Elena's Three Options

Following up on the case study above:

Retire now at 58. She keeps her health plan but pays 100% of the premium for four years. At 62, the University contribution starts at 80% (she has 22 years of service and a pre-2013 service date). At 65, she enrolls in Medicare Part A and B, and her University coverage continues through the Medicare Advantage options.

Work three more years and retire at 61. She pays full cost for about one year, then the 80% contribution starts. She also gets three more years of salary, three more years of contributions to the 403(b), 401(a), 403(b) SRA, and 457(b), and three fewer years drawing down her portfolio.

Work to 62. She skips the full-cost window entirely. The University contribution starts immediately in retirement.

None of these is the "right" answer. Your health, your spouse's coverage, your savings, and what you actually want to do with your time all matter. But you can see why the retirement date is a planning decision, not just a feeling.

A Checklist Before You Pick a Date

Confirm your service date. This one number drives which tier schedule applies to you.
Confirm your points. At 80 today? A year away? Two?
Ask HR: "If I retire on this date, when does the University contribution begin, and at what percentage?" Get it in writing.
Price the pre-62 gap. If you're considering retiring early, run the full-cost premium numbers first. Then decide if it's worth it to you.
Calendar the Medicare deadline. Part A and Part B, about 90 days before your 65th birthday.
Coordinate spousal coverage. Sometimes a spouse's employer plan bridges the gap. Sometimes it complicates things.
Revisit your account allocations. Big premium bills in your early 60s change how much you should hold in short-term buckets across the 403(b), 401(a), 403(b) SRA, and 457(b), and where you draw from first.

Our Boundary

A quick word on FWM's role on helping clients plan. The rules above are University of Michigan's, straight from the HR website. Deciding how to pay for the pre-62 gap is where taxes enter the picture: which accounts to draw from, whether ACA (Affordable Care Act) subsidies apply, how HSA dollars fit. That's when I bring a CPA to the table. And if survivor benefits or beneficiary designations come up, an estate planning attorney joins too. Good planning is a team sport.

Where Foundation Wealth Management Fits In

Our job is to turn the 80-points rule, the age-62 cliff, the service tiers, the Medicare hand-off, and four stacked retirement plans into one clear picture, then manage the investment side so you can get back to your work and your life.

If you're within five years of retirement and want a second set of eyes on the timing, my calendar is open. Happy to review things!

Go Blue!

Sources:

Foundation Wealth Management is not an official advisor of the plan/benefits.

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Healthcare Fact

A 65 year old retiring in 2026 can expect to spend an average of $185,500 on healthcare and medical expenses throughout retirement.

Alex Potter, CFP® is the President of Foundation Wealth Management, LLC. This article is educational and is not individualized advice. The author is not a CPA and not an estate planning attorney; consult those professionals for tax and estate matters. Elena is a hypothetical example and not indicative of any specific client.

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. This communication is strictly intended for individuals residing in the states of MI, IN, OH. Cambridge and Foundation Wealth Management are not affiliated.