Many Firms to Keep Retirees’ Drug Plans
Most large companies plan to keep offering prescription coverage to their retirees after Medicare’s new drug benefit takes effect in 2006, according to a national employer survey released Tuesday.
The findings by the nonprofit Henry J. Kaiser Family Foundation and the consulting firm Hewitt Associates eased some fears that employers would rush to drop their drug benefits for retirees once the government started paying for outpatient prescriptions.
“I’m very encouraged,” said Sen. Charles E. Grassley (R-Iowa), chairman of the Senate Finance Committee, who helped write the Medicare prescription drug bill. “We sought to stem the downward trend in the availability of retiree prescription drug benefits, and the survey is a good sign that we’re accomplishing that goal.”
The government plans to provide an annual subsidy averaging $611 per retiree to companies that agree to maintain their benefits. Nearly 60% of companies said they planned to accept the subsidy and continue to offer benefits, and an additional 17% said they would offer coverage to supplement Medicare’s.
But the survey of 333 large companies, defined as having 1,000 or more employees, also found that employer health coverage for retirees continued to decline under the pressure of rising costs, as most companies pass on a greater share of expenses to their retirees and some contemplate terminating retirement health benefits for current workers.
The share of medium and large companies that offer retiree health benefits has fallen from 66% in 1988 to 36% this year.
During 2004, retirees have been paying an average of about 25% more in premiums than they did last year, marking the third consecutive year of double-digit increases, said Tricia Neuman, director of Kaiser’s Medicare project.
The survey found that 8% of companies ended their subsidized benefits for future retirees in the last year, and an additional 11% said they were considering such a move.
Fully 85% of companies said they expected to keep increasing retiree contributions for health benefits.
The total cost of providing health benefits to retirees rose by nearly 13% this year, with employers picking up about three-fifths of the bill.
Frank McArdle, head of Hewitt’s research office in Washington, said companies appeared to be trying to preserve some level of benefits for those who were already retired. However, they are increasingly pulling back from making a similar commitment to future retirees.
“Current retirees are going to be pretty well protected,” McArdle said. “It’s the younger generations that are going to have to figure out another way to do it.”
While companies appeared to be holding fast to their commitments to retirees, Kaiser Foundation President Drew Altman said it was too early to tell what would happen after the Medicare prescription benefit had been available for a few years.
“I wouldn’t take any conclusion to the bank until we have a few years of experience with it,” he said.
About 12 million Medicare beneficiaries receive retiree health benefits through a private employer. The extra benefits have been valuable, since Medicare has significant coverage gaps, including outpatient prescription drugs.
Though Medicare will begin subsidizing outpatient prescriptions in 2006, the government plan will still have holes in it.
Under the new Medicare benefit, retirees will pay the first $250 in prescription costs every year. The government will pay 75% of the next $2,000.
However, beneficiaries are responsible for all costs between $2,250 and $5,100 -- a coverage gap of $2,850 that has been dubbed “the doughnut hole.” After a beneficiary has spent $5,100, Medicare will pick up 95% of the cost.
An earlier Kaiser study estimated that 7 million beneficiaries would spend enough to reach the coverage gap. Overall, however, about three-fourths of beneficiaries would pay less or about the same as they do now for prescriptions, and the poor would pay significantly less.
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Rising premiums
Retirees are paying more in healthcare premiums this year than in 2003 as the cost of employer health benefits continues to rise, according to a survey of 333 large companies by the nonprofit Henry J. Kaiser Family Foundation and the consulting firm Hewitt Associates.
Average monthly health insurance premiums
For those retiring in 2003 Pre-65 Employer Employee contribution contribution TOTAL
Retiree only $261 $166 $427 Retiree and spouse $500 $345 $845
65 and over Employer Employee contribution contribution TOTAL
Retiree only $129 $83 $212 Retiree and spouse $245 $174 $419
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For those retiring in 2004 Pre-65 Employer Employee contribution contribution TOTAL
Retiree only $300 $187 $487 Retiree and spouse $737 $387 $1,124
65 and over Employer Employee contribution contribution TOTAL
Retiree only $161 $101 $262 Retiree and spouse $391 $209 $600
Source: Kaiser/Hewitt Survey on Retiree Health Benefits, 2003 and 2004
