Health benefits for retirees keep eroding

As some companies end plans, premiums rise 25%

December 15, 2004|By NEW YORK TIMES NEWS SERVICE

WASHINGTON - Premiums for retirees who receive health benefits from their former employers have shot up an average of 25 percent this year, a new study has concluded.

The study, issued yesterday by the Henry J. Kaiser Family Foundation and Hewitt Associates, found continuing erosion of retiree health benefits among large employers.

Companies are requiring retirees to pay a larger share of premiums and other health costs. In the past year, while continuing to provide coverage for people who have retired, about 8 percent of large private employers have ended subsidized health benefits for future retirees, and 11 percent said they would do so next year.

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 new Medicare law might slow or stop the erosion of drug benefits at least temporarily, the study indicated.

"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, president of the Kaiser foundation, which conducted the study with Hewitt, a benefits consulting firm.

Asked about Altman's assessment, Kate Sullivan Hare, executive director of health care policy at the U.S. 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," Hare said.

The survey examined benefits at 333 large companies with 1,000 or more employees. Together, those companies, which include 20 percent of the Fortune 500, provide health benefits to 4.9 million retirees and spouses.

For companies providing retiree health benefits, costs have increased an average of 12.7 percent this year, the study said.

A typical worker younger than age 65 who retired this year paid $2,244 annually in health premiums, 27 percent more than a similar worker who retired last year, the study said.

For a typical worker age 65 or older who retired this year, the annual premium for retiree health benefits was $1,212, about 24 percent higher than the comparable figure for last year.

Medicare, the federal health insurance program, covers most medical costs for older retirees, but many workers retire before reaching age 65.

Most employers in the survey said they were likely to continue offering drug benefits to retirees age 65 and older because the companies could get federal subsidies for such coverage under the new law.

Eighty-five percent of those 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.

McArdle added, however, that although large employers intend to continue offering 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."

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