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Retirees Alarmed at Threat of Cuts in Drug Benefits

By Robert Pear, The New York Times,

September 15, 2003

As Congress works on legislation to cover prescription drugs under Medicare, lawmakers have been deluged with complaints from retirees who fear losing drug benefits they already have from former employers.

Some lawmakers say this issue is emerging as the most immediate threat to the legislation.

Congress is frantically seeking ways to address the concern, by offering tax credits, subsidies or other incentives for employers to continue providing drug benefits to retirees. The tax credits would be available to employers who maintain drug coverage or supplement what Medicare provides.

Medicare generally does not cover outpatient prescription drugs. Some employers voluntarily provide such coverage though they are not required to do so.

In the last month, members of Congress say, they have realized that any Medicare drug benefit they may approve will have a profound effect on health coverage provided to retirees by former employers.

Representative Michael Bilirakis, the Florida Republican who is chairman of the Energy and Commerce Subcommittee on Health, said his constituents were "up in arms" over the possible loss of retiree health benefits.

"If we don't have a plan to keep that from happening," he said, "we will catch an awful lot of flak." He said he feared a repetition of events in 1989, when elderly people forced Congress to repeal a law charging them extra for Medicare coverage of catastrophic medical expenses. Many retirees already had such coverage.

At a town hall meeting in July, retirees told Representative Benjamin L. Cardin, Democrat of Maryland, that the proposed drug benefits were far inferior to what they had from former employers, including the state university and local fire departments.

"Congress says the new benefits are voluntary, but many people would lose coverage they have," said Francis A. Meehling, 76, who worked for the Baltimore Fire Department for more than 30 years.

About 12 million of the 40 million Medicare recipients have retiree health benefits, usually including some drug benefits. The Congressional Budget Office estimates that one-third of the people with such drug coverage could lose it under bills passed in June by the House and the Senate.

Many employers "would see enactment of a Medicare drug benefit as an opportunity to reduce the costs and risks of providing drug coverage," the budget office said in a lengthy report issued after the House and Senate passed separate versions of the legislation. Moreover, it said, the legislation provides "a clear financial disincentive for employers to supplement" the new drug benefit.

House and Senate negotiators are trying to reconcile the two bills. Both provide insurance to cover drug costs after a beneficiary's out-of-pocket spending reaches a certain limit. But costs paid by an employer are not counted as out-of-pocket spending. So it would be almost impossible for a person with retiree health benefits to reach the limit. As a result, Medicare would spend less, on the average, for a person with retiree drug benefits than for a person who lacks such coverage.

Alan V. Reuther, legislative director of the United Automobile Workers, said his group and other labor unions were urging Congress to give employers a tax credit to reflect the share of catastrophic drug costs that would be borne by employers rather than by Medicare. To qualify, an employer would have to show that the value of its drug coverage was at least equal to the value of standard drug coverage under Medicare.

The Employers' Coalition on Medicare, which represents large companies like Caterpillar, Dow Chemical and Verizon, strongly supports comprehensive Medicare legislation, including drug benefits.

But Edward J. Kaleta III, a lobbyist for Caterpillar who is chairman of the coalition, said: "Congress should not discriminate against our retirees because they have employer-provided coverage. Our retirees should be treated the same as other Medicare beneficiaries."

E. Neil Trautwein, director of employment policy at the National Association of Manufacturers, said many employers were already cutting retiree health benefits because of the costs.

"There's a looming crisis in retiree health care," Mr. Trautwein said. "Absent a life preserver from Congress, many retirees will lose coverage." Far from encouraging employers to drop coverage, he said, "the Medicare legislation will encourage employers to continue providing retiree drug benefits."

Dallas L. Salisbury, president of the Employee Benefit Research Institute, a private nonpartisan group, predicted that many employers, rather than eliminating drug benefits, would scale them back to supplement the new Medicare benefit.

Employers say they are wary of overreaching and will not insist on subsidies or tax credits that push the cost of the legislation above the amount allocated by Congress, $400 billion over 10 years.

Lobbyists for the elderly say that millions of older retirees could be at greater risk of losing employer-sponsored health benefits because of a provision in the Senate bill. This section says that employers can legally provide retirees over the age of 65 with health benefits that are inferior to those provided younger retirees.

In the past, federal courts have held such disparities violate the Age Discrimination in Employment Act.

Michele Pollak, a lawyer at AARP, the lobby for older Americans, said: "This provision would allow employers to reduce or even eliminate retiree health benefits for anyone over the age of 65. In the midst of a national debate about how to improve benefits, it's astonishing that anyone would think that's in the public interest."

Representative John F. Tierney, Democrat of Massachusetts, has introduced a bill that would generally prohibit employers from reducing retiree health benefits after a person has retired. "Large, profitable employers — even those who enticed employees into early retirement with assurances of health care coverage into old age — are reneging on their commitment," he said.

But employers note they are not legally obligated to provide retiree health benefits. In a letter to Congress, the employers' coalition said its members opposed any mandate and wanted a range of options, including the right to supplement any Medicare drug benefit.