Cost of Retiree Health Benefits Rising
Survey: 80 percent of firms expect to raise premiums for former employees
THURSDAY, Dec. 5, 2002 (HealthDayNews) -- Retirees too young to receive government health insurance can expect to pay more for their private coverage until they do enter Medicare, and even then their bankbooks could feel the pinch.
A new survey of large companies by the Kaiser Family Foundation and Hewitt Associates, a benefits consulting firm, found that 80 percent of the 435 firms queried expect to ask their retiring employees to pay more for their health benefits in the next three years.
Some employers help retirees under age 65 pay for health care until they are eligible for Medicare, the government's insurance plan for the elderly. Some companies also continue to offer retirees enrolled in the public plan supplemental coverage for prescription drugs and other items Medicare doesn't provide.
More than a third of companies said they will, or have already, cut health benefits for retired workers. About one in five said they would probably eliminate these benefits for future retirees, while 13 percent said they'd already done so within the past two years.
Surging costs of providing coverage triggered the move. The companies project that costs will rise 16 percent this year, from $12.5 billion to $14.5 billion. Much of the burden comes from rising prescription drug costs.
"I don't think this is posturing. I think rising health costs and a more difficult economy is just making it more challenging for employers to provide health benefits to retirees," said Tricia Neuman, director of Kaiser's Medicare Policy Project and a co-author of the report released today.
About half the companies in the survey said they had caps on how much they would pay for retiree health benefits -- and between 50 percent and 60 percent said they'd already hit those spending levels.
Retirees are already reaching deeper into their own pockets to pay for benefits. Those under age 65 paid 19 percent more for their health benefits this year than they did in 2001, and those 65 and older paid 20 percent more for coverage, the report found.
But paying more is usually better than the alternative, Neuman said. "Those that are taking [retiree coverage] are willing to incur the higher premiums, because it's still better than what they could get on their own," she added.
The 435 employers, each with at least 1,000 workers, employ 7.4 million people and have 3.3 million retirees. Their health plans affect nearly 24 million people.
Many employers stopped offering retirees health coverage in the early 1990s after an accounting law change, said Michael Carter of the Hay Group, an international benefits consulting firm that also conducts a yearly benefits survey. In 1992, before the shift, 61 percent of companies in the Hay survey offered retiree health coverage. This year, the figure is 48 percent, Carter said.
The most common response to the rule change was for employers to ask retirees to pay more for their benefits, Carter said. And as the cost of coverage has continued to climb, they keep asking. "This really stands out as a difficult problem for most employers," he said.
Neil Trautwein, director of employment policy for the National Association of Manufacturers, called the new survey a "dog-bites-man" story.
"It shouldn't surprise anyone that health-care costs are increasing drastically and affecting retirees as well as workers," Trautwein said. "In the manufacturing sector the economy has been flat at best, and companies are not able to absorb these cost increases."
Trautwein said active workers across the economy are paying an average of 13 percent more for their health benefits this year than they did in 2001. Employees in a third of his group's 14,000 member firms have seen hikes of 25 percent or more.
Trautwein said a prescription drug add-on to Medicare is one of his association's top priorities. But Mary Ellen Signorille, a lawyer for the AARP, which also supports such a plan, said it won't cure what ails the nation's health-care system. "It's not the only thing that's driving up costs," Signorille said.
Jim Norby, president of the National Retiree Legislative Network in Washington, D.C., called the survey results "statistical confirmation of what we've said is happening." Norby's group, which represents between 2 million and 2.5 million retirees, is lobbying for legislation that would prevent companies from reducing health benefits to retired workers once the coverage has been set.
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