Retiree health insurance benefits are often one of the most confusing aspects for State of Illinois employees retiring under the State Universities Retirement System (SURS). Here we will explain the basics of the Retiree Health Insurance Benefit, including how to qualify and the key features and potential drawbacks of the program.
Special Note for SURS Retirement Savings Plan (RSP) Participants:
In the fall of 2020, SURS converted the SURS Self-Managed Plan (SMP) to the SURS Retirement Savings Plan (RSP), which added another layer of complexity to the retirement planning process. For a more in-depth overview of this change, please refer to our previous writing on that topic.
Qualifications
Service Credit
The first eligibility requirement is service credit, which varies based on your SURS membership tier. Your tier is determined by your initial date of employment with a SURS-covered employer:
Tier I: If you began SURS-covered employment before January 1, 2011, you are considered a Tier I participant. Tier I members become eligible for retiree health insurance benefits after 5 years of service credit.
Tier II: If you began SURS-covered employment on or after January 1, 2011, you are a Tier II participant. Tier II members must accumulate 10 years of service credit to qualify for any retiree health insurance benefits.
These service credit requirements represent the minimum needed to become eligible for a subsidized health insurance plan in retirement.
Eligibility for health insurance does not guarantee full coverage. To have your health insurance fully subsidized by the State of Illinois, you must accumulate 20 years of service credit.
If you qualify with less than 20 years of service, you will share the cost of coverage with the State. The chart below outlines how the cost is determined based on your years of service.
NOTE: Coverage for a spouse or dependents is available for an additional cost: $2.46/mo for a single dependent and $5.05/mo for two or more dependents. (IL Dept of CMS, 2025)
Annuity Election
The second requirement in addition to meeting the service credit requirements to qualify for retiree health insurance is to annuitize your pension. If you separate from service and defer taking a monthly retirement benefit under SURS, you would not be entitled to the retiree insurance benefit until you have annuitized your pension plan. Taking a refund of your pension plan balance, including rolling over your plan balance to an IRA or other retirement plan will result in a forfeiture of retiree health insurance benefits.
Annuitization of SURS is the process of converting your benefit into a stream of income payable monthly for the remainder of your life. For the Traditional and Portable plan, the process is straightforward. Your pension will be calculated based on the higher of two formulas determined by SURS. Your primary decision will be whether to elect a survivor benefit or allow benefits to end upon your death.
The Retirement Savings Plan has more flexibility, which makes annuitizing a bit more complex. To qualify for health insurance benefits, you would need to select one of the following three options.
Annuitize the entire balance of your SURS RSP. This annuity will typically be administered through Principal (if your funds are held with them) or through TIAA, depending on where your RSP assets are invested.
Move at least 50% of your RSP balance into the SURS Secure Income Portfolio (SIP) to activate the lifetime income benefit. To do this, first move all non-annuitized RSP funds into the Lifetime Income Strategy (LIS). Then, transfer at least 50% of those LIS funds into the SIP. Once that is complete, any remaining LIS funds not in the SIP can be moved back to the RSP Core Funds or withdrawn.
A combination of Options 1 & 2. For example, you could use one-third of your RSP account to buy an annuity through Principal. Then, allocate half of the remaining balance to the SIP for lifetime income and the other half to LIS or Core Funds for periodic withdrawals.
There is a common misconception that RSP participants must use the SIP to maintain health insurance. That is not true. Electing an annuity (e.g., through Principal or TIAA) remains a valid and acceptable option.
Timing of Retiree Health Insurance
It is possible to retire from the university and delay drawing your pension. This may be beneficial if you have alternative insurance coverage through new employment or a spouse. Deferring your benefit has two potential benefits. First, your pension benefit (Traditional or Portable) may increase, or the balance of your account can continue to grow (RSP). Second, if you are not yet Medicare-eligible, the State of Illinois will pay an additional monthly incentive to opt out of retiree insurance.
Example 1
A university employee, Scott, has 20 years of service at age 50, at which point he leaves university employment to pursue a second career with a private sector employer. The new employer offers health insurance. The employee leaves his account balance with the SURS RSP, which allows the balance to continue to grow. At age 60, Scott fully retires from his private sector position and needs health insurance. At this point, he activates one of the RSP income options to qualify for health insurance as a State of Illinois retiree.
The Value of Retiree Health Insurance under SURS
There may be cases where an individual chooses to forgo their SURS retiree health insurance benefits, but before making this irrevocable decision, it is important to understand what those health insurance benefits are worth.
How SURS Retiree Health Insurance works with Medicare
If you are in the SURS Retirement Savings Plan (RSP), you are also required to participate in Medicare. While working, you pay into the Medicare system through payroll taxes. Upon turning 65, you must enroll in Medicare.
Note, If you are still employed and covered by your university’s insurance when you turn 65, you only need to enroll in Medicare Part A. You may delay enrolling in Part B until after you retire.
Medicare has three parts:
Part A, which covers hospital services and is generally free for those age 65+
Part B, which covers doctor visits and other outpatient services. Part B has a monthly premium starting at $185 (2025); cost can increase based on income.
Part D, which covers prescription drug costs.
Once you retire and become a SURS annuitant aged 65 or older, you are required to enroll in the Total Retiree Advantage Illinois (TRAIL) plan, managed through Illinois Central Management Services (CMS). This is a Medicare Advantage plan, which means it combines and replaces Medicare Part A, Part B, and Part D. It also includes ancillary coverages like vision, dental, and hearing. Even under the TRAIL program, you still must pay the Medicare Part B premiums on your own. The State of Illinois subsidizes (or entirely covers) the rest of your supplemental health cost.
Example 2
Continuing from Example 1 above, Scott is now 65 and preparing to enroll in TRAIL, the Illinois Medicare Advantage plan for retirees. Three months before his 65th birthday, he goes online to sign up for Medicare Part A and Part B through Social Security. Once enrolled, he notifies CMS (Centers for Medicare & Medicaid Services) of his Medicare enrollment. One month before turning 65, Scott logs into his MyBenefits portal to complete his TRAIL plan selection.
After he turns 65, Scott’s coverage through TRAIL officially begins. His TRAIL premium is fully covered by the State of Illinois because he has 20 years of service credit. However, Scott will now begin paying monthly premiums of $185 per month for Medicare Part B assuming his income stays under the limit (single $106,000, married filing joint $212,000).
How much is this SURS health insurance subsidy worth?
For a retiree with 20 or more years of service, age 65 or older and on Medicare, the value of this benefit is around $51.21 per month (IL Department of CMS, 2025). This is the amount the State of Illinois covers for the cost of the Advantage Plan for enrolled retirees. The benefit is prorated based on years of service (see service credit chart for details).
For a retiree with 20 or more years of service and under the age of 65, the SURS health insurance benefit is significantly more valuable. Prior to Medicare eligibility, the state picks up the entire cost of their health insurance. For those retiring before age 65, the cost of health insurance can be a significant obstacle. For example, marketplace plans at healthcare.gov range in monthly cost from $1,280 to $2,028 for a 60-year-old, single male in Champaign, 61821 (Healthcare.gov, 2025).
Example 3
In an alternate universe, Scott retired from his private sector job at age 60 but does not want to surrender his RSP balance for an annuity or pay the ongoing insurance fees under the Secure Income Plan (SIP). He decides to do some research to compare his health insurance options.
Between the ages of 60 and 65, Scott enrolls in a private marketplace health plan, paying monthly premiums ranging from $1,280 to $2,028. His premium increases with age and varies based on his choices such as selecting a high vs. low deductible, whether the plan includes copays, and the level of prescription drug coverage he wants (Healthcare.gov, 2025). However, since Scott declined the Illinois retiree health insurance, he is receiving a benefit of $500 per month from Illinois which ends at age 65.
As Scott approaches 65, he compares two options: Medicare Supplement and Medicare Advantage (see FAQs below for more details on the differences).
Medicare Supplement
Scott, a 65-year-old non-tobacco user living in ZIP code 61821, learns that he can enroll in a Medigap Plan G for as low as $117 per month, in addition to his Medicare Part B premium, which varies based on income (Medicare.gov, 2025b). To add prescription drug coverage, he would also need to enroll in a Medicare Part D plan, with premiums ranging from $0 to $125.80 per month (Medicare.gov, 2025a).
Scott’s estimated montly cost for health coverage would be $242.80 (plus income-based Part B premiums) for his health coverage with an annual deductible of $257. After that, all Medicare-covered services are fully covered, with no copays or coinsurance for the rest of the year. However, Plan G does not cover routine dental, hearing, or vision services.
Medicare Advantage
Scott also explores Medicare Advantage (Part C) plans, which differ from Medigap because they are not federally standardized, so benefits, networks, and costs vary by provider.
He finds that Aetna offers a plan called Aetna Medicare Value (PPO), which is similar in structure and benefits to the Illinois TRAIL plan. Key features include a $0 monthly premium, an annual deductible of $590, prescription drug coverage, and ancillary benefits such as dental, vision and hearing coverages (Medicare Advantage, 2025).
Scott would pay copays for services until he reaches his $4,900 out-of-pocket maximum, after which the plan covers all in-network care at 100% for the rest of the year. The trade-off is lower monthly costs but potentially higher out-of-pocket costs if he uses more care.
FAQs
What kind of coverage will my spouse have?
If both you and your spouse are over age 65 when you retire and select the Illinois retiree insurance, you will be enrolled in TRAIL. If both of you are under 65 at retirement, you will initially be enrolled in the SEGIP plan (Illinois’ pre-medicare health insurance coverage) until one of you becomes eligible for Medicare.
Previously, both spouses would remain in SEGIP until the covered retiree became Medicare-eligible, at which point both would transition to TRAIL. However, effective July 1, 2025, a new law requires each person to transition to TRAIL individually upon becoming Medicare-eligible. So, once one of you becomes eligible for Medicare, that person must enroll in Medicare Parts A and B and move to TRAIL. The other spouse will stay enrolled in SEGIP until they also become Medicare-eligible.
Is the Illinois retiree health insurance my only option at retirement?
No. Illinois retiree health insurance is optional. You may choose alternative coverage, such as through a spouse's plan or a private Medicare Supplement plan. While the subsidized premiums offered by the state plan are a great benefit, it's important to evaluate other options, especially if you have specialized health needs or plan on spending time outside of Illinois.
Note: If you have 20 or more years of service and are not yet eligible for Medicare, you may receive a $500/month incentive for opting out of the retiree health insurance.
What is a Medicare Supplement plan?
While a Medicare Advantage Plan is a replacement for Medicare, Medicare Supplement is an additional layer on top of Parts A and B. It allows you to see any doctor nationwide who accepts Medicare. However, Medicare Supplement typically comes with higher monthly premiums and does not include extra benefits like dental or vision care, nor does it include drug (Part D) coverage.
Is Medicare Supplement better than the Medicare Advantage plan provided by TRAIL?
Whether Supplement or TRAIL is better depends on your individual needs. Supplement may be advantageous for those who want the freedom to see specialists, plan on traveling or moving out of Illinois, and are willing to pay an additional premium. Also, selecting a Supplement plan allows you to not annuitize your RSP balance at retirement.
Medicare Advantage can be appealing if you prefer the lower premiums, don’t mind the limitations of a network of providers, and find value in the ancillary benefits (such as vision and dental).
Conclusion
Navigating health insurance is one of the biggest barriers we see for clients who wish to retire, especially for those who retire prior to Medicare-eligibility. The University of Illinois offers a great incentive to their employees in the form of the Illinois sponsored health insurance plan, but it might not always be the best choice. Whether you plan on retiring in Illinois or across the country, selecting the appropriate health insurance is an important decision in ensuring stability in your retirement plan.
If you or someone you know has questions about retiring under the SURS system, understanding the SURS Retirement Savings Plan (RSP), or navigating retiree health insurance options — we are here to help. It would be our privilege to bring clarity and confidence to your decisions. Schedule a call with us today to get started!
References
Healthcare.gov. (2025). View health and dental plans. Retrieved from Healthcare.gov: https://www.healthcare.gov/see-plans/#/plan/results
IL Department of CMS. (2025). 2025 SEGIP Less than 20 Contributions. Retrieved from Total Retiree Advantage IL (TRAIL): https://cms.illinois.gov/content/dam/soi/en/web/cms/benefits/trail/state/documents/2025/2025%20SEGIP%20Less%20than%2020%20Contributions.pdf
IL Dept of CMS. (2025). FY25 TRAIL - State of Illinois Group Insurance Program. Retrieved from FY25 TRAIL: https://cms.illinois.gov/content/dam/soi/en/web/cms/benefits/trail/state/documents/2025/25_TRAIL_StateInitialEnrollment_ADA_101124.pdf
Illinois Central Management Services. (2025). 2025 TRAIL Medicare Advantage Prescription Drug Medical Contributions. Retrieved February 23, 2021, from https://www2.illinois.gov/cms/benefits/trail/state/Pages/2021_Rates.aspx
llinois Department of Central Management Services. (2018, November 28). Opt Out with Financial Incentive. Retrieved March 16, 2021, from https://www2.illinois.gov/cms/benefits/StateEmployee/Pages/OptOutwithFinancialIncentive.aspx
Medicare Advantage. (2025). Aetna Medicare Value (PPO) - H7301-007-000. Retrieved from MedicareAdvantage.com: https://www.medicareadvantage.com/plans/aetna-medicare-value-ppo-h7301-007-000
Medicare.gov. (2025). Medicare.gov plan D premiums. Retrieved from Medicare.gov: https://www.medicare.gov/plan-compare/#/search-results?fips=17019&plan_type=PLAN_TYPE_PDP&zip=61821&year=2025&lang=en&page=2
Medicare.gov. (2025). Supplement Insruance (Medigap) Plans in Illinois. Retrieved from Medicare.gov: https://www.medicare.gov/medigap-supplemental-insurance-plans/#/m/plans?fips=17019&zip=61821&year=2025&lang=en
State University Retirement System. (2020, December 21). RSP Frequently Asked Questions. Retrieved February 04, 2021, from http://www.surs.com/welcome-surs-retirement-savings-plan
Co-authored by:
Jacob Kuebler CFP® and EA, Senior Advisor and Managing Partner
Timothy Lee, CFP®, Associate Advisor
Originally posted in 2022. Updated and expanded in 2025.