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Kaiser Pharmacy

WASHINGTON -- Nearly 1-out-of-every-3 U.S. employers have already or are likely to terminate subsidized-health benefits for future retirees, according to a recent survey from the Kaiser Family Foundation and Hewitt Associates.

The study, which looked at the health spending plans of 408 of the largest U.S. employers, found that 10 percent of those companies did away with health benefits for future retirees over the past year. Another 20 percent reported they probably would end retiree health coverage within the next three years.

The study also found that retirees are paying more for their company-sponsored health care. Fully 71 percent of surveyed firms increased retiree contributions to premiums in the past year, and 86 percent plan to increase such contributions within the next three years, according to Kaiser.

Equally striking, 57 percent of those companies surveyed increased drug co-payments for retirees and plan members, and 32 percent imposed three-tiered drug co-payments.

"Based on current trends, we can expect that fewer retirees will have health coverage in the future and those who do will be paying more for their health care," said Drew Altman, Ph.D., president and chief executive officer of the Kaiser Family Foundation.

The changes, which primarily affect new hires rather than current retirees, are likely to further roil the debate over Medicare drug benefits and seniors' prescription drug costs.

Nearly half of all surveyed firms, 46 percent, have placed caps on their future financial retiree health obligations, prompted by rising health care costs and new accounting rules. In general, the caps limit the liability of employers by requiring retirees to absorb a greater share of costs when spending for retiree health exceeds a predetermined amount.

Thus, by current standards, nearly a third of all major firms offering health benefits to retirees have either hit their cap or expect to hit their cap on retiree health obligations within the next one to three years.

"Offering retiree health care benefits is a delicate balancing act for employers," said Frank McArdle, Ph.D., manager of Hewitt's Washington research group. "Double-digit cost increases, shifting demographics, financial caps, global competition and the impact on the bottom line are driving large companies to re-examine their retiree health programs and make changes."

According to the survey, the total cost for employers and retirees for health benefits increased by an estimated 13.7 percent last year, to an estimated $20.6 billion in 2003, to provide coverage to retirees and their dependents.

In 2003, pre-65 retirees paid an average of $166 for health coverage and employers paid an average of $261, while age 65-plus retirees paid $83 per month, and employers paid an average of $129," Kaiser noted in its findings.

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