Employers Tapering Back on Retiree Health Benefits

According to a report by the Center for Retirement Research (CRR), there has not been a decline in the share of retirees with benefits, with roughly two-thirds of workers who retired between1994 and 2004 – before they were eligible for Medicare – having retiree health benefits. More than seven in 10 full-time workers aged 55 to 64 received health benefits from their employers in 2004 and this figure has not changed much since 1994.

Even though the report did not find that employer health coverage slid among retirees or older workers between 1994 and 2004, it did show that those who did not retire until after age 65 were more likely than early retirees to lose their employer coverage because people without access to retiree health benefits tend to delay retirement until they qualify for Medicare.

According to the research, among late retirees who received employer health benefits, 34% received employer benefits that supplemented their Medicare benefits, 5% received supplemental benefits from their spouses’ employers, and 27% purchased supplemental coverage from private insurers.

Also, as health costs rise, employers are forcing retirees to take on some of the costs of providing health benefits, with the premium contributions that most firms require from both employed and retired health plan participants rising in recent years. Between 1994 and 2004, median contributions more than quadrupled – after adjusting for inflation – for adults aged 55 to 63 enrolled in health plans offered by their former employers.

The monthly contributions required by retirees aged 55 to 63 went from $25 in 1994 to $111 in 2004, and over the course of an entire year, the increase in required contributions between 1994 and 2004 for the median retiree too young to qualify for Medicare went above $1,000 in inflation-adjusted dollars.

However, the rates paid for retiree health benefits remain much lower than those paid to private non-group health insurance providers. The median monthly premium paid in 2004 by adults aged 55 to 63 with private nongroup insurance was $278, according to CRR.

The number of private firms with 200 or more employees that offered retiree health care saw a 30% drop between 1988 and 1993 as a result of an accounting rule that required employers to recognize expected future retiree health care costs as liabilities on the balance sheets. However, since 1993 the share of private employers offering retiree health insurance varies by firm size and the data source, but shows a general decline, with rates among small firms being lower.

A copy of the report is available here .