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

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 .