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Employers Reducing Retirement Health Benefits, Study Finds

By Leigh Strope

Washington Post, September 16, 2002

Few workers today are getting ready for this significant change and may have to consider putting off retirement, said an author of a new study on the issue.

By 2031, companies are expected to pay less than 10 percent of total medical expenses for retirees as part of actions already taken, according to the report to be released today by Watson Wyatt Worldwide, a human resources consulting firm that works with employers.

Large employers now typically pay more than half of total retiree medical expenses. But increasing health care costs are forcing companies to scale back how much they are willing to offer.

"The burden on future retirees to pay for their own medical costs is increasing dramatically, and far too few employees are prepared for these looming changes," said Sylvester J. Schieber, Watson Wyatt vice president and an author of the study.

"Retirees will have no choice but to assume greater responsibility for planning for medical costs during their retirement, including consideration of increased personal savings and even delayed retirement," Schieber said.

About 20 percent of employers studied have eliminated retiree medical plans for new hires, and 17 percent will require new hires to pay the full premium for coverage, the report said. Other companies are capping their contributions, linking them to the retiree's length of service or imposing stricter minimum-service requirements.

The report found that 45 percent of employers cap contributions for new hires while 39 percent do so for current employees. Only one in four employers cap contributions for current retirees. The median employer contribution cap of $2,000 for current post-65 retirees -- that is those who have Medicare coverage -- drops to $1,740 for future retirees. The median of $4,450 for current pre-65 retirees drops to $3,900 for future retirees.

The study is based on benefit plans of 56 large employers with at least 5,000 employees. The growing population of retirees, rising life expectancies and uncertain business profitability also are contributing to the trend.

But workers are being confronted by health care concerns even before retirement nears. Workers now are paying more as their benefits erode, a recent study by the Henry J. Kaiser Family Foundation found.

This year saw the largest increase in premiums in 12 years, to nearly 13 percent. Single premiums are now on average $3,060, with $7,954 for family coverage.

The amount workers pay for coverage also has risen substantially. Employees now pay an average of $454 a year for single coverage, an increase from last year of 26 percent, or $95. Family coverage averaged $2,084 a year, up 16 percent, or $283. For the first time in four years, more workers experienced a cut in benefits than an increase.

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