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Survey Finds Retiree Health Benefits Continue to Erode

  • January 19th, 2004

Fewer retirees will have health coverage in the future and those who do will pay more for it, according to a new survey of large U.S. employers conducted by the Kaiser Family Foundation and Hewitt Associates.

The survey found that 10 percent of large employers eliminated subsidized health benefits for future retirees in the past year, while 20 percent say they are likely to terminate retiree health coverage for future retirees in the next three years. The survey notes that the changes mainly affect current workers or new hires, and current retirees are largely shielded from the cutbacks.

The study also found that 71 percent of surveyed firms increased retiree contributions to premiums in the past year, and 86 percent plan to increase such contributions within the next three years.

Employers are an important source of health insurance coverage for workers who retire before they are eligible for Medicare ("pre-65 retirees") and for retirees who have Medicare and rely on retiree coverage to fill in Medicare s gaps ("age 65+ retirees"). For pre-65 retirees, employer-plans are typically the primary and sole source of health insurance coverage, while for age 65+ retirees, employer plans generally supplement Medicare, helping to pay for benefits, such as prescription drugs, that are not currently covered, and assisting with cost-sharing requirements under Medicare.

The study was conducted between June and September 2003 with 408 large private-sector firms (1,000 or more employees) that offer retiree health benefits, including 45 percent of all Fortune 100 companies and 30 percent of all Fortune 500 companies. Overall, 38 percent of companies offered retiree health care plans in 2003, down from 66 percent in 1988,

"Looking to the future, there is concern that competitive pressures, the recent downturn in the economy, the weakening of the labor market and double-digit increases in health care costs may hasten the decline of retiree benefits," the report states.

The new Medicare prescription drug legislation, which passed Congress and was signed by President Bush after the survey was completed, will likely further accelerate the decline in retiree benefits. Although the new Medicare law offers employers incentives not to drop drug coverage for retirees, the Congressional Budget Office predicts that 3.8 million retirees who have such coverage from a former employer will see that coverage reduced or eliminated as a result of the Medicare law.

Complete survey findings are presented in the report, Retiree Health Benefits Now and in the Future. To access the report, chartpack, press release, and Webcast of the report, go to: http://www.kff.org/medicare/011404package.cfm

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Needham Mitnick & Pollack, PLC
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Last Modified: 01/19/2004

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