Retirees' Share of Health Tab Creeps Higher
Challenges lie ahead for early retirees, survey suggests
WEDNESDAY, Dec. 13, 2006 (HealthDay News) -- While most large employers still offer retiree health benefits, retired workers continue to pay a growing share of total costs, a new survey finds.
In the largest retiree plans, new retirees -- those who left jobs on or after Jan. 1, 2006 -- experienced premium hikes averaging 15.1 percent for early retirees and 9.6 percent for retirees aged 65 and older.
The survey also finds that just 25 percent of large companies are setting aside money to help cover future retiree health-care obligations. And many large firms are limiting their future financial obligations for retiree health coverage by capping contributions to the largest pre-65 and 65-plus plans they offer.
The findings, released Wednesday by the Kaiser Family Foundation and Hewitt Associates, raise concern about the long-term security and cost of retiree health benefits, especially for pre-65 retirees.
"I think our survey would suggest that retiree health benefits are waning, and there's no question that there has been an erosion," said Tricia Neuman, director of the Kaiser Family Foundation's Medicare Policy Project.
However, she added that, "It's not going to happen tomorrow; that those who have retiree benefits today are going to keep them most likely, but pay more for them."
Employer-sponsored health plans play a critical role in the U.S. health insurance system by providing coverage to an estimated 3.8 million early retirees (aged 55 to 64) and dependents, according to the Kaiser/Hewitt report. People who retire before they become eligible for Medicare benefits often find it difficult to secure affordable health insurance in the individual market. Some return to work just to gain access to health benefits.
Employer plans also remain an important source of supplemental benefits for more than 12 million retirees on Medicare, the report noted.
Still, mounting health-care costs have forced many employees to scale back benefits. A Kaiser/Health Research and Educational Trust survey released earlier this year found that between 1998 and 2006, the share of large employers offering retiree benefits dropped from 66 percent to 35 percent.
The Kaiser/Hewitt survey reflects a sample of 302 private-sector employers, each with 1,000 or more employees. Collectively, they provide health benefits to 5.1 million retirees and dependents -- about one-quarter of all Medicare beneficiaries with retiree benefits and nearly half of the 7.2 million Medicare-eligible retirees with private employer coverage.
The joint survey is the fifth since 2002 to examine the state of retiree health benefits.
Between 2005 and 2006, the total cost of retiree health benefits -- including employer and retiree contributions -- rose an estimated 6.8 percent, on average, at surveyed companies. That rate of increase is comparable to increases reported in the cost of health benefits for active workers.
The average cost of retiree health spending among the surveyed firms is $68.7 million, but those costs vary greatly depending on the size of the firm. Companies with 20,000 or more workers spend an average of $216 million.
To reign in spending, companies are deploying a variety of cost-shifting strategies, the survey found. For example, 74 percent of employers increased premiums for early (under age 65) retirees, while 58 percent increased premiums for Medicare-eligible (65 and older) retirees. Employers also said they boosted cost-sharing requirements for pre-65 (34 percent) and Medicare-eligible (24 percent) retirees.
In some limited cases, employers are actually terminating benefits. This year, 11 percent eliminated subsidized benefits for a group of future early retirees, while 9 percent scrapped these benefits for a group of future 65-and-older retirees, the survey found. Ten percent of firms said they are "very" or "somewhat likely" to cut subsidized coverage for some future retirees next year.
Meantime, as the new Medicare drug benefit enters it second year, most large employers are sustaining drug coverage for their Medicare-eligible retirees and expect to do so next year. That's probably good news, Neuman noted, as "employer benefits are typically more generous than the Part B benefits."
But their longer-term plans are less clear, underscoring the need for retirees to make "careful, well-thought-out decisions about coverage each year," the Kaiser/Hewitt report cautioned.
For early retirees who lack access to Medicare, the current environment poses particular challenges. Their premium contributions are rising at a more rapid rate than those of 65-plus retirees, and, like Medicare-eligible retirees, they are shouldering a greater share of the cost of covered benefits.
"If you look at Social Security data, more than two out of three people retire before the age of 65, so it's been something that people have practiced for a long time," said Hewitt's Frank McArdle, an author of the report. "But I think we are in the process of reappraising what retirement really is going to mean, and that work is going to be a larger component of it than it has been in the past."
Added Diane Rowland, the Kaiser Family Foundation's executive vice president: "We also know that one of the hardest age groups to get health insurance coverage is those between 50 and 65 where in the individual market you clearly have age-related premiums. And pre-existing conditions of the individual or a family member can really mean a prohibition against being able to get coverage in the individual market, especially affordable coverage."
Early retirees, with the help of a financial planner, should try to get a ballpark estimate of their medical expenses and insurance costs before taking retirement, McArdle advised.
To read the full report, visit the Kaiser Family Foundation.