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Retirees Are Paying More for Health Benefits, Study Says
By Robert Pear, The New York
Times
December 15, 2004
Retirees who receive health benefits from their former employers saw premiums shoot up an average of 25 percent this year, a new study says.
The study, issued Tuesday by the Kaiser Family Foundation and Hewitt Associates, showed a continued erosion of retiree health benefits among large employers.
Companies are requiring retirees to pay a larger share of premiums and other health costs. While continuing to provide coverage for people who have already retired, about 8 percent of large private employers took action in the last year to end all subsidized health benefits for future retirees, and another 11 percent said they would do so next year.
"Prospects for retiree health coverage are slowly disappearing for America's workers, and retirees who have it will be paying more," said Drew E. Altman, the president of the Kaiser Family Foundation, which conducted the study with Hewitt, a benefits consulting firm.
Asked about Mr. Altman's assessment, Kate Sullivan Hare, executive director of health care policy at the United States Chamber of Commerce, said: "That's absolutely true. I can't disagree." The chamber represents businesses of all sizes.
New hires, in particular, are less likely to receive any promise of retiree health benefits. That trend has significant implications not only for young workers, but also for middle-aged employees who want to change jobs but feel they cannot sacrifice health benefits.
"That really alarms me, the fact that some people stay in jobs because of the health benefits, not because of the job," Ms. Sullivan Hare said.
In an effort to rein in drug costs, employers increased co-payments for prescription medicines, required retirees to get prior approval for certain drugs or insisted that retirees use mail-order pharmacies.
The survey examined benefits at 333 large companies with 1,000 or more employees. The companies, which include one-fifth of the Fortune 500, provide health benefits to 4.9 million retirees and spouses.
For companies providing retiree health benefits, costs increased an average of 12.7 percent this year, the study said.
A typical worker under age 65 who retired this year paid $2,244 annually in health premiums - 27 percent more than a similar worker who retired in 2003, the study said.
For a typical worker 65 or older who retired this year, the annual premium for health benefits was $1,212, about 24 percent higher than the comparable figure for 2003. Medicare, the federal health insurance program, covers most medical costs for these older retirees. But most workers retire before reaching 65.
Noting the sharp rise in retiree premiums, Mr. Altman said, "Employers tell us to expect more of the same next year."
An employer's power to cut retiree health benefits depends on the terms of the documents that establish a health plan. Courts have generally said that if an employer explicitly reserves the right to reduce or eliminate health benefits, it can do so.
The new Medicare law may stop the erosion of drug benefits at least temporarily, the study said. Most employers in the survey said they were likely to continue offering drug benefits to retirees 65 and older because the companies could get federal subsidies under the new law. Eighty-five percent of these employers said they would probably retain current levels of drug benefits, which are more generous than the standard Medicare drug benefit.
"Employers are signaling their intent to stay the course, at least in 2006," said Frank B. McArdle, manager of Hewitt's Washington research office.
But Mr. McArdle added, while employers intend to continue drug benefits in 2006, they could increase the employee's share of the cost for drugs or other medical benefits.
In the new law, Congress provided subsidies to encourage employers to continue providing drug benefits to retirees. Medicare is expected to spend $71 billion on such subsidies from 2006 to 2013. To qualify for assistance, an employer must certify that its retiree drug benefits are worth at least as much as the standard Medicare drug benefit.
Gary R. Karr, a spokesman for the federal Medicare agency, said the data on employers' intentions showed that "the new law is working as Congress intended." Senator Charles E. Grassley, Republican of Iowa and an architect of the legislation, said, "We sought to stem the downward trend in the availability of retiree drug benefits, and the survey is a good sign that we're accomplishing that goal."
Among employers in the survey, 79 percent said they increased premiums for retiree health benefits this year and 45 percent increased co-payments for a range of health care services. In addition, 53 percent of employers increased co-payments specifically for prescription drugs.
The typical co-payment is $10 for a month's supply of a generic drug, $20 for a brand-name product on a list of preferred drugs and $35 for other drugs.
Ms. Sullivan Hare said the cutbacks in retiree benefits came as employers were struggling to provide coverage to active workers.
The long-term trend is clear. Among employers with 200 or more workers, Kaiser said, 36 percent offered retiree health benefits this year, down from 66 percent in 1988.
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