Benefits June 1, 2001

GAO: More Retirees Could Have to Buy Private Health Coverage

June 1, 2001 (PLANSPONSOR.com) - The General Accounting Office (GAO) foresees a further decline in employer-sponsored retiree health care, forcing an increasing number of retirees to seek more expensive or unaffordable private insurance.

Reported by

Fred Schneyer

Retirees will face numerous hurdles in obtaining private health insurance, the GAO wrote in a study called “Employer-Sponsored Benefits May Be Vulnerable to Further Erosion.”

The GAO reported that the number of retirees with employer-sponsored health coverage has remained relatively stable since 1997, as employers have focused on reducing coverage for future rather than current employees.

Researchers listed several factors that could prompt a further erosion from the current 37% of early retirees and 26% of Medicare-eligible retirees with health coverage from a former employer.

These are:

a resumption of premiums outpacing inflation
an economic slowdown with a softening labor market
changes in Medicare coverage (such as adding a prescription drug benefit) that could affect cost and design of employer coverage for Medicare-eligible workers
a recent court ruling, allowing claims of violations of federal age discrimination law when employers make distinctions in health benefits they offer retirees on the basis of Medicare eligibility
baby boomers leaving the workforce overwhelming employers with the need for expensive retiree health benefits.

The GAO said the decline in the amount of employer-provided coverage has not reversed itself since 1997.

Forcing retirees to find their own coverage puts them in the private insurance market at the worst possible time – when the workers are older and have potentially chronic illnesses. ‘Retirees whose former employers reduce or eliminate health benefits often face limited or unaffordable alternatives to obtaining coverage,’ the GAO writes.

For example, a 60-year-old male in a state where the cost of private health premiums is not capped, could pay four times what a 30-year-old male pays and more if the older worker is sick, the GAO said. Most states do not cap individual premiums.