Many Employers Share Increased Health Care Costs With Retirees, Survey Finds
Many employers this year asked retirees to share more of the rising cost of health benefits, and some plan to do so again in 2005, according to a survey released Tuesday by the Kaiser Family Foundation and Hewitt Associates that shows the "continued erosion of retiree health benefits among large employers," the New York Times reports. The survey, conducted between May and September, includes responses from 333 private-sector firms that employ at least 1,000 workers and offer retiree health benefits. The companies comprise 20% of the Fortune 500 firms and provide health benefits to 4.9 million retirees and their spouses.
According to the survey, among companies with 200 or more employees, 36% offered retiree health benefits in 2004, compared with 66% in 1988. Eight percent of companies said they eliminated health benefits for future retirees in 2004, and 11% said in 2005 they will likely eliminate benefits only for future retirees (Pear, New York Times, 12/15).
In addition, 1% said they will likely eliminate benefits for current retirees in 2005 (Crenshaw, Washington Post, 12/15).
The survey found that firms offering retiree health benefits experienced a 12.7% increase in health costs in 2004, with employers and retirees sharing the cost increase at most firms (New York Times, 12/15). The companies expect to pay more than $17 billion in retiree health costs in 2004, according to the survey, the Washington Post reports.
The survey also found that workers under age 65 who retired in 2004 typically would pay $2,244 annually in premiums, a 27% increase from employees who retired in 2003. This group typically would pay $4,644 annually for spousal coverage. Medicare-eligible workers who retired in 2004 would pay $1,212 annually in premiums, a 24% increase from 2003 retirees. Spousal coverage would cost the typical worker in this group $2,508 annually (Washington Post, 12/15).
The survey also found that:
- 79% of employers increased their retirees' contributions for premiums in the past year, and 85% expect to do it in 2005;
- 53% increased prescription drug copays or coinsurance in 2004, and 49% expect to do it in 2005;
- 37% raised deductibles in 2004, and 43% expect to do it in 2005;
- 29% raised out-of-pocket limits on retirees' obligations in 2004, and 37% expect to do it in 2005; and
- 13% changed their policies in 2004 to offer retirees access to pooled benefits that they pay for entirely themselves, and 18% expect to offer such policies in 2005 (Kaiser Family Foundation release, 12/14).
Fifty-four percent of employers said they have placed caps on their contributions to at least one retiree health plan they offered in 2004, the survey says (Greene, Wall Street Journal, 12/15). Of companies that imposed such a cap on their largest plan for retirees younger than age 65, 53% already have reached the cap and 28% say they expect to reach the cap in the next one to three years, the survey says (Kaiser Family Foundation release, 12/14).
Among firms that have imposed a cap on their biggest plan for Medicare-eligible retirees, 56% have already reached their limit, and 27% expect to reach it in the next one to three years (Wall Street Journal, 12/15).
The survey also found the new Medicare law "may stop the erosion of [retiree] drug benefits at least temporarily," the New York Times reports (New York Times, 12/14). According to the Post, some observers had been concerned that the new Medicare prescription drug benefit "would cause a rush to the exit by private employers" (Washington Post, 12/15).
According to the survey, 69% of firms said their retiree health plan offers more generous prescription drug benefits than available under the new law. About one-third of firms said they had studied how the new law would affect them financially, and 15% expect a "significant" reduction in their retiree health costs, 34% expect a "moderate" reduction and 25% expect a "nominal" reduction or none at all.
Fifty-eight percent of companies said they would continue offering retiree drug benefits at current levels even after the Medicare drug benefit takes effect in 2006, and they would accept the tax-free subsidy available under the new law. Of those companies, 85% said they would retain current benefits.
The survey also shows that 17% of companies said they would likely offer supplemental drug coverage once the Medicare drug benefit takes effect; 8% said they would discontinue their drug coverage; and 17% said they were either undecided about a strategy or planning a different course of action altogether. About three-quarters of companies said they plan to provide retirees with information about the new Medicare drug benefit (Kaiser Family Foundation release, 12/14).
Kaiser Family Foundation President and CEO President Drew Altman said, "Retiree health care coverage is kind of a slowly vanishing species" (Sherman, AP/Detroit Free Press, 12/15). He added, "Prospects for retiree health coverage are slowly disappearing for America's workers, and retirees who have it will be paying more."
According to the New York Times, the survey's findings have "significant implications" for middle-aged workers "who want to change jobs but feel they cannot sacrifice" health coverage. Kate Sullivan Hare, executive director of health care policy at the United States Chamber of Commerce, said, "That really alarms me, the fact that some people stay in jobs because of the health benefits, not because of the job" (New York Times, 12/15).
Frank McArdle, manager of Hewitt's Washington, D.C., research office, said, "With the [new Medicare law's] deadline only a year away, employers are signaling their intent to stay the course, at least in 2006. ... We expect that employers will continue to assess their options after the forthcoming regulations are issued and as additional information emerges about the marketplace for prescription drug plans, which could result in future strategy changes" (Kaiser Family Foundation release, 12/14).
Tricia Neuman, a Kaiser Family Foundation vice president and director of its Medicare Policy Project, said, "These findings suggest that employers, at least for the short term, plan to maintain benefits for current retirees" (Blanton, Boston Globe, 12/15).
CMS spokesperson Gary Karr said the survey shows the new Medicare law "is working as Congress intended." Sen. Chuck Grassley (R-Iowa), who helped write the new Medicare law, said, "We sought to stem the downward trend in the availability of retiree drug benefits, and the survey is a good sign that we're accomplishing that goal" (New York Times, 12/15).
However, Altman added, "I wouldn't take any conclusion [about the new Medicare law] to the bank until we have a few years of experience with it" (Alonso-Zaldivar, Los Angeles Times, 12/15). The survey is available online.