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Retirees' Health Costs Rise Sharply

Survey expects trend to continue next year

TUESDAY, Dec. 14, 2004 (HealthDayNews) -- Retirees shouldered a much larger share of their health-care costs in 2004 and should expect to pay even more next year, says a new report that casts an even dimmer outlook for people who are still in the workforce.

According to a survey of 333 of the nation's largest employers conducted by the Kaiser Family Foundation and Hewitt Associates, firms that provide retiree health benefits experienced cost increases of about 12.7 percent in 2004, with employers and retirees sharing the increases. This is the third consecutive year that the survey has reported double-digit increases in health-care costs, Kaiser vice president Tricia Neuman said Tuesday at a news conference.

A typical worker under the age of 65 who retired in 2004 paid 24 percent more ($2,244 for single coverage) than a worker who retired the year before. Individuals 65 and older -- making them eligible for Medicare -- paid 27 percent more in 2004 ($1,212 in annual premiums for single coverage).

"There is an erosion of employer-based health insurance," said Kaiser president Drew Altman. "Premiums have shot up by about 25 percent. That's a big increase, and employers tell us to expect more of the same next year. Retirement coverage is a slowly vanishing species. I doubt that our kids will have it in the future."

The study is the third of a series, the first of which was conducted in 2002. In all, the companies surveyed employ 6.5 million people and have 3 million retirees; they provide coverage to 16 million employees and family members and nearly 5 million retirees and spouses.

Escalating costs translate into increased financial outlays for retirees and their families. Fifty-four percent of the firms said they have imposed caps on health obligations. "Often what happens to employers who have hit their cap or are approaching their cap is they end up making changes that shift costs onto the retirees," Neuman said.

Of the companies surveyed, 79 percent said they had increased retiree contributions on premiums in the past year and 85 percent said they expect to do so in the coming year; 8 percent said they had terminated all subsidized benefits for future retirees, a change that will most likely affect new hires.

"Younger generations may be less likely to come into a firm and be offered retiree health benefits," Neuman explained. "It also is a wake-up call to mid-career people who may be thinking about switching jobs, because when they go to their next job they may not be offered retiree health benefits."

Among the other changes reported: 53 percent of firms said they had increased co-pays for prescription drugs, while 49 percent expect to; 37 percent raised deductibles, and 43 percent expect to.

At the same time, 12 percent of companies surveyed said they had added or improved coverage. One percent said they were likely to terminate subsidized coverage for current retirees, while 11 percent said they are likely to terminate coverage for future retirees.

Companies were also asked about changes spurred by the Medicare Modernization Act (MMA) of 2003, which will include a drug benefit scheduled to begin in 2006. The MMA also includes financial incentives for firms to provide drug coverage for Medicare-eligible retirees.

Fifty-eight percent of the companies surveyed said they are likely to continue offering prescription drug benefits and accept a tax-free subsidy created by the MMA. Of these, 85 percent said they planned to maintain current benefit levels. Seventeen percent said they are likely to offer prescription drug coverage as a supplement to Medicare, and 8 percent said they would discontinue drug coverage altogether.

"So far there isn't a stampede away from coverage because of the drug law," Altman said. "But we're still figuring this one out. We don't want to take any conclusions to the bank until we have experience with this."

"By and large, companies are staying the course," added Frank McArdle, manager of Hewitt's Washington Research Office. "The subsidy is working, but longer-term there is going to be an ongoing issue about how people will finance retirement health coverage. People working for the biggest companies are likely to remain in plans that cover them, but the smaller down you go on the scale, the more likely you are to lose coverage."

More information

You can view the report at the Kaiser Family Foundation.

SOURCES: Dec. 14, 2004, news conference with Drew Altman, Ph.D., president, Kaiser Family Foundation; Frank McArdle, Ph.D., manager, Hewitt's Washington Research Office; Tricia Neuman, Sc.D., vice president and director, Medicare Policy Project, Kaiser Family Foundation
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