Some Employers to Cut Retiree Drug Benefits

Nearly 1 in 10 companies that provide retiree health benefits will cut drug coverage next year as a new Medicare prescription benefit takes effect, according to a survey released Wednesday.

The projected decline is smaller than many experts had feared -- in part because the government offered subsidies to employers that agreed to continue providing retirees with a drug benefit equal to or better than what they would receive under the new Medicare Part D program.

But more than 9% of companies surveyed by the nonprofit Kaiser Family Foundation said they would stop offering drug coverage, with some discontinuing retiree medical health benefits altogether. And in the future, more companies are likely to drop coverage.

Only half of those surveyed said they would continue offering retiree drug benefits by 2010, despite the tax-free subsidies -- which are equal to 28% of allowable drug costs between $250 and $5,000 per retiree in 2006. The survey found that 22% of companies were unlikely to do so, with the rest undecided.

In all, nearly 80% of companies surveyed said they would keep retiree drug coverage while an additional 10% said they would offer it at a reduced level.

“The widespread dropping of drug benefits that some have feared has been averted so far, as businesses figure out what their longer-term response will be,” said Drew Altman, president and chief executive of the Kaiser foundation, which sponsored the study along with Hewitt Associates, a benefits consulting firm.

The survey analyzed responses from 300 companies with 1,000 or more employees that together provide benefits for 5.7 million retirees and dependents and 15.8 million workers and dependents.

It found that a typical Medicare-eligible worker retiring in 2005 will pay $1,536 annually in premiums, while the employer will pay $2,544. The retiree’s share is up nearly 10% from 2004.

Kaiser Family Foundation surveys found that about two-thirds of companies with at least 200 employees offered retiree health benefits in 1988. By 1991, only 46% offered such coverage, and participation has leveled off at about one-third of companies in recent years.

The Medicare Part D drug discount plan, expected to cost $700 billion over the next decade, was signed into law by President Bush in 2003 and takes effect Jan. 1. Eligible retirees have until May 15 to sign up. Medicare beneficiaries now pay full price for prescription medication or buy insurance to cover it.

Critics have been concerned that retirees with employer-sponsored coverage who sign up for stand-alone Medicare drug coverage through another insurer could lose the employer coverage.

“Seniors with retiree health benefits should consider their options carefully before signing up for a new Medicare drug plan,” said study coauthor Tricia Neuman, a Kaiser Family Foundation vice president. “Most retiree plans offer more comprehensive benefits than Medicare, and retirees who drop employer-sponsored coverage may not be able to pick it up again later.”

Among companies that are keeping drug benefits for retirees next year is Irvine-based Allergan Inc., which provides prescription drug coverage to its retirees equal to what they had when they retired.

Leaving Allergan retirees to Medicare Part D plans might put them “at a tremendous disadvantage,” said Caroline Van Hove, a spokeswoman for the specialty pharmaceutical company. “We want to make sure they are taken care of properly.”