Retirees facing rate hikes

Tens of thousands of retired workers, long accustomed to generous health benefits, are being hit with huge hikes in premiums as rising medical-care costs strain tight corporate budgets in a lackluster economy.

The cost of providing benefits to retirees is rising even faster than premiums for employees, pushing more companies to consider eliminating retirement health benefits. Currently, more than 12 million retirees have some kind of medical coverage, provided by roughly half of U.S. companies with 1,000 or more employees.

Retiree rates are doubling for some, or at least jumping much faster than the 13% to 25% increase for workers, because premiums are exceeding caps companies set years ago to protect themselves from rising health-care costs, analysts say.

Harmon Davis of Bourbonnais, Ill., knows all about it.

Davis, 60, repaired cash registers and business machines for NCR Corp. for 40 years before retiring three years ago with a plan that set the monthly premium for him and his wife at $100 this year. But by next year, his premium will more than double to $231, according to a letter Davis received from NCR in October.

And by 2005, Davis’ costs are projected to triple to $620 a month -- an amount that will consume more than one-third of his annual $21,540 pension. Davis expects he will be forced to look for a part-time job to pay the bills.

The trend in cutting retiree benefits comes even as federal lawmakers have passed a Medicare drug benefit for seniors -- one of the most important benefits for retirees with employer-based medical coverage, seniors say.

Yet the proposed Medicare drug plan does little for retirees younger than 65. Even for those older than 65, Medicare’s drug benefit will take effect too late to help them with their premium hikes, because Medicare’s prescription coverage will take effect in 2006, with the exception of drug discount cards available next year.

Dayton, Ohio-based NCR wrote letters to its more than 14,000 retirees last month letting them know the company must eliminate $250 million in expenses by the end of 2005 and cut medical benefits to meet its overall budgeting targets.

Health-care coverage for retirees tends to be more expensive because they are older and tend to use more medical services, particularly prescription drugs, analysts say. Most stay in employer-sponsored retiree plans until they are 65, when Medicare kicks in. They will need to buy only a supplemental policy if they want drug coverage.

But the costs for supplemental policies are going up too -- often double and triple what seniors have been used to for much of the last decade.

Ralph Kolderup, a retired regional sales manager for Ameritech, now SBC Communications Inc., said supplemental coverage cost just $2 a month three years ago. This year, he paid $133 a month and his premium will rise to $224 a month next year.

“To go from zero to more than $2,500 a year is fine if you are working and get annual raises and maybe a performance bonus. But when you are retired, what ... are you going to do?” said Kolderup, 65, of Palatine, Ill.

SBC is like an increasing number of companies being forced to raise premiums on retirees because of budgeting maneuvers several years ago that set a cap on future retiree obligations. In SBC’s case, the company created such a cap in the early 1990s and told workers they would face the possibility of paying a portion of their medical premiums if they rose above the cap. The cap kicked in last year, triggering large increases in retiree contributions.

Because of the dramatic increase in health-care costs over the years, the caps are starting to take effect at companies across the country. About half of all employers that offer retiree medical benefits report having such caps, according to a study by the Henry J. Kaiser Family Foundation and benefits firm Hewitt Associates.

In the future, retiree medical benefits may not even exist for current employees, given the trend, analysts say. One in five large employers say they are going to eliminate coverage for “future retirees,” typically new or recent hires, within three years, the Kaiser-Hewitt analysis indicates.