In a press release, Hewitt said its survey of 218 Canadian organizations reveals that only 4% say they plan to eliminate post-retirement health care benefits entirely. However, 57% say they intend to reduce the level of benefits over the next three years. Reasons cited for the change include the rising cost of health care (95%), accounting costs (67%), and the large number of employees planning to retire in the next decade (43%).
In addition, 55% of Canadian companies absorb the additional costs created by cutbacks in provincial health care benefits, the release said. Only 25% of surveyed respondents said they plan to absorb future costs. Also in response to political changes, while 63% of companies have not decided how they would respond to making private health care available to Canadian employees, 59% of those who have decided say they do not intend to cover the costs of private health care under any circumstances.
Naveen Kapahi, a senior benefits consultant in Hewitt’s Vancouver office, said in the release, “Escalating health care costs, combined with the economic and political changes currently underway in Canada, will force many to actively look at strategies beyond traditional cost-shifting to manage rising health care costs.”
Strategies survey respondents said they plan to utilize include:
- Stricter eligibility requirements– According to Hewitt’s survey, 14% plan to adopt stricter eligibility requirements for workers to qualify for retiree health care benefits. In 2004, one-third of organizations (34%) did not require a minimum number of years of service before employees qualified for post-retirement health care benefits. Today, 33% of companies responding to the survey require six to 10 years of service before employees are eligible for benefits, an increase of 7% since 2004.
- Reductions in medical coverage –Eighteen percent of organizations said they plan to reduce medical coverage for their retirees in the next three years, including eliminating medical services, increasing deductibles/co-payments and capping certain healthcare services.
- Increased cost- sharing – Approximately one in three (30%) companies said they plan to add or increase retiree contributions to their retiree health care programs.
- Increased flexible retiree benefit plans– As a way to control costs, many companies are now offering flexible retiree benefit programs, which enable companies to control their future benefit spending by paying for benefits through a monetary allowance instead of funding the benefits directly. Sixteen percent of companies now offer flexible benefit programs to retirees, up from 8% in 2004.
Copies of the study, “Postretirement Health Care Benefits in Canada 2006,” can be obtained by calling 416-225-5001 or emailing firstname.lastname@example.org .