Rising Costs Force Many Large Employers to Reduce Health Benefits for Retirees
Increased health care expenses are forcing many large companies to reduce health benefits for hundreds of thousands of retirees or require retirees to cover more of the cost of coverage, the New York Times reports. Reductions in retiree health benefits in the past few years have resulted mainly from "sudden sharp increases" in prescription drug costs, which account for 40% to 60% of employer health care costs for retirees ages 65 and older. In addition, a number of Medicare+Choice plans, many of which had provided prescription drug coverage, have imposed "far-reaching cutbacks" that have forced employers to cover the cost of pharmaceuticals for retirees. Traditional fee-for-service Medicare does not cover the cost of most drugs. As a result of these changes, retiree health care costs have been increasing by an average of 18% a year and could increase by as much as 34% a year in the future, according to the U.S. Chamber of Commerce.
Many large companies hope to "limit the damage to profits by demanding larger copayments, raising deductibles and limiting coverage" for retirees, the Times reports. Many medium-sized companies -- those with several hundred to a few thousand employees -- no longer offer retiree health benefits to new hires, and small companies "rarely" provide health benefits for retirees, the Times reports. Several health care experts said that health care costs for retirees will increase more in the future "unless the government provides tax relief" for employers or adds a prescription drug benefit to Medicare. Retirees in 2001 covered all or part of the cost of their health benefits in about 80% of company health plans, a Mercer Human Resource Consulting nationwide survey found. In the mid-1980s, 50% of company health plans covered the entire cost of retiree health benefits, the Times reports (Freudenheim, New York Times, 5/10).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.