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Employers Reducing Retiree Health Plans

Current employees face the gloomiest prospects, a recent survey shows.

Tulsa World - December 23, 2002

Most large employers will require retirees to pay more to keep company-sponsored health insurance, and increasing numbers of future retirees will get none, according to a survey of businesses released this week.

For the next three years, 95 percent of large employers surveyed plan to continue offering health insurance to retirees now in company-sponsored plans.

However, 22 percent of companies surveyed said they are likely to eliminate such coverage to future retirees, primarily new and recent hires.

The pace of companies eliminating medical benefits for future retirees is accelerating, the survey found.

Thirteen percent of surveyed employers terminated coverage for future retirees in 2001 and 2002.

"The most bitter pill in this survey is for current workers," said Tricia Neuman, director of the Medicare Policy Project for Kaiser Family Foundation, a nonprofit health policy think tank.

Kaiser conducted the survey along with Hewitt Associates, a consulting firm.

The study is based on a survey of 435 private companies with 1,000 or more employees that now offer retiree health benefits. The firms employ 7.4 million workers and have 3.3 million retirees.

The findings have important implications for lawmakers and interest groups engaged in the debate over reforming Medicare and Social Security, the massive federal retirement programs threatened by the aging baby boom generation.

U.S. companies already are confronting the demographic tidal wave that threatens to overwhelm the nation's landmark social programs for the elderly, said Frank McArdle, research manager for Hewitt Associates.

Currently, there are about four workers paying into Social Security and Medicare for every one retiree drawing benefits. But by 2030, the ratio will drop to 2.6 workers per beneficiary, not enough to pay promised benefits.

Many of the surveyed companies are at the 2-to-1 ratio now, McArdle said.

Their response has been to require retirees pay more for health insurance and eliminate future coverage for employees just entering the work force.

Randy Johnson, a human resources specialist with Motorola Inc., said the private sector supports adding a prescription drug benefit to the Medicare program, something Congress failed to accomplish this year.

If designed correctly, the benefit could lower costs for employers and their former workers, he said.

Seventy-eight percent of employers surveyed said they likely would continue offering a drug benefit to their retired workers even if Congress added prescription drug coverage to Medicare.

For the time being, more than 8 in 10 surveyed employers said they are very or somewhat likely to continue increasing premiums for retirees and their dependents.

On average, newly retired workers who have not reached their 65th birthday pay $153 a month to continue health coverage through a former employer. Those who have turned 65 and entered Medicare pay $79 a month for insurance through their former employer.