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Companies Rapidly Cutting Health Benefits

Tue Dec 14, 6:20 PM ET

Health - AP

By MARK SHERMAN, Associated Press Writer

WASHINGTON - Many companies are dropping their promise of health
benefits for future retirees, who now might have to stay on the job
longer and rely on government health care in their old age.

Eight percent of employers with at least 1,000 workers said they had
eliminated subsidized retiree health benefits for some workers this
year, and 11 percent more said they probably would do so next year,
according to a study released Tuesday by the benefits consulting firm
Hewitt Associates and the nonprofit Kaiser Family Foundation.

Most of those affected were newly hired, but some companies said the
change applied to workers who had been on the payroll longer.

The number of companies that offer health coverage to retirees has been
on the decline for 15 years.

But among those that continue to subsidize retiree coverage, the move
to treat current and former workers differently reflects a desire to
leave health benefits in place for those who have already retired
despite several consecutive years of double-digit increases in health
care costs.

Since 2000, more than 100 large employers have chosen this path.

Some have cut out subsidies but have told employees they can continue
coverage under company health plans after they retire, a much cheaper
option than seeking health insurance elsewhere.

"Retiree health care coverage is kind of a slowly vanishing species,"
Kaiser president Drew Altman said.

The prospect of losing health coverage in retirement is troubling
particularly to people who are considering changing jobs or who want to
retire between the ages of 55 and 64. Younger retirees can find it
difficult to afford health insurance when they can't get it from their
employers.

Medicare, the government health program for older and disabled
Americans, kicks in at age 65. Its benefits typically have been less
generous than those offered by employers, mainly because the workplace
plans cover prescription drugs. Medicare's drug insurance program
begins in 2006.

The employer plans, however, are asking retirees to pay more of their
health costs through higher insurance premiums and larger co-pays for
doctor visits and prescription medicines.

People who retire in 2004 face premiums about 25 percent higher than
those who retired last year, according to the survey of 333 companies,
which was conducted between May and September.

Most large employers said they will maintain prescription drug benefits
for retirees after the Medicare drug program begins in 2006, the study
said.

The fate of retirees with employer-sponsored drug benefits was a major
consideration of the authors of last year's Medicare prescription drug
law.

To keep more employers from dropping coverage, the law includes up to
$88 billion over 10 years in tax-free subsidies to companies that offer
prescription benefits that are at least the equal of Medicare's.

In 1991, 80 percent of firms employing 1,000 or more workers offered
health coverage to retirees. By 2003, the number had fallen to 57
percent, Hewitt said. When looking at companies with at least 200
employees, the number is 38 percent, Kaiser said.

Roughly 15 million retirees receive health care coverage from former
employers. About 3 million are 55 to 64. The rest are eligible for
Medicare, Altman said.

The new survey, conducted before issuance of final Medicare regulations
about the drug benefit, found that just 8 percent of employers said
they would drop retirees' drug benefits in the program's first year.

Frank McArdle, manager of Hewitt's research office in Washington, said
the early response from employers is good news. But he cautioned that
decisions about 2007 and beyond would depend on the regulations, the
design of Medicare drug plans devised by private insurers and by costs.


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