Firms Will Keep Retiree Drug Coverage in 2006 But Unsure About Future

December 7, 2005 ( - A survey from the Kaiser Family Foundation and Hewitt Associates finds that 79% of large firms that now provide retiree health benefits will accept government subsidies for continuing to provide retiree drug coverage at least as good as Medicare's coverage when the new drug benefit starts in 2006.

Another 10% say that they will provide some drug coverage to supplement the new Medicare benefit, and 9% say that they plan to stop offering drug coverage to Medicare-eligible retirees, according to a press release.

While 82% of firms surveyed said they are very or somewhat likely to accept the subsidy again in 2007, when looking ahead to 2010, only 50% say they are likely to accept it, 22% say they are unlikely to accept it, and 28% say they do not know.

Among employers that report any savings due to the Medicare drug benefit,the weighted average savings is $644 per individual retiree in 2006. Firms that will continue to offer benefits and accept the government subsidy in 2006 will save, on average, $626 per individual retiree, while firms that supplement the new Medicare drug benefit will save an average of $826
per individual retiree.

Based on employers’ estimates,their responses to the drug benefit will result in median savings of 7% of total retiree health costs in 2005,including the employer and the retirees’ share of the costs for both Medicare-age retirees and early retirees.

The survey also finds that many firms that will accept the subsidy have policies in place that will affect retirees who enroll in a Medicare drug plan instead. Among these employers, 29% say that retirees who sign up for a Medicare plan would lose both employer-sponsored medical and drug coverage if they enroll in a Medicare prescription drug plan, and 31% say retirees would lose prescription drug coverage only (and retain other benefits). The remaining firms (41%) say that retirees would maintain all employer-sponsored coverage.

In addition, 56% accepting the Medicare subsidy for their largest plan in 2006 say retirees would be allowed to enroll or re-enroll in the employer plan at a future date if they sign up for a Medicare drug plan, but 44% of employers say retirees would not be able to do so in the future.

Overall Retiree Benefits

Surveyed firms report an average increase of 10% in total retiree health costs between 2004 and 2005, including both Medicare-eligible retirees and early retirees (under age 65) who do not qualify for Medicare benefits. About 12% of firms said they had stopped offering subsidized retiree health benefits in 2005 for future retirees, mainly newly hired workers.

A typical Medicare-eligible worker retiring in 2005 pays $1,536 annually toward their individual retiree health insurance premiums in the plan with the largest number of Medicare-eligible retirees, while the employer pays the remaining $2,544 of the $4,080 total premium. The retiree’s share is about 9.9% more than what a similar retiree paid in 2004.About 19% of firms require new Medicare-eligible retirees to pay 100% of plan premiums in 2005. In contrast, 11% of firms pay the full premium for their retirees.

To address costs, nearly two-thirds of firms (63%) have a cap on their future financial obligations for retiree health benefits in plans offered to Medicare-eligible retirees in 2005. Among the half (49%) of firms with a cap on the largest plan available to their Medicare-eligible retirees,almost six in 10 (59%) said that they have already hit the cap, and another one in four (27%) say they expect to hit the cap within the next three years.

Most firms, though, shifted costs to retirees between 2004 and 2005. Seventy-one percent raised the premiums payments for retirees in the past year, while 34% raised co-payments, 24% raised annual deductibles, and 19% raised required out-of-pocket expenses for retirees.

The Kaiser Family Foundation/Hewitt Associates 2005 Survey on Retiree Health Benefits includes the responses of 300 large private-sector firms (with 1,000 or more employees) that currently offer health benefits to retirees, representing 32% of all Fortune 100 companies and 33% of all Fortune 500 companies.

The full report can be accessed here .