Medicare Reforms Could Prompt Retiree Health Coverage Exodus

June 20, 2003 ( - Lawmakers and others now have a new worry about providing health-care coverage to Americans: namely, that pending Medicare reform may prompt employers to dump their retiree health care policies.

The Congressional Budget Office estimated that up to 37% of private employers could scrap their retiree policies under versions of Medicare reform circulating in the United States Senate, according to a Reuters news report. Lawmakers are debating whether and how to expand Medicare to cover prescription drugs.

Senator Bill Frist, (R-Tennessee), the chamber’s Majority Leader, told reporters in Washington that Democrats and Republicans were working together to try to fix the problem. “I’m asking all of our smartest staff people how you do that,” said Frist, according to the Reuters report. “Everybody’s working on it.” Roughly 41 million seniors and disabled people get health coverage through the government-run Medicare health program.

Faced with rising health care costs, more employers are already cutting back on retiree medical benefits — even without the massive new Medicare program, which may offer skimpier benefits than many seniors now get in their retirement packages. Underlying medical costs soared 9.6% last year after a 10% rise in 2001, according to a study released this month by the Center for Studying Health System Change (See Study: Slowing Health Cost Hikes a Silver Lining ).

Private health insurance cover after retirement could drop to 10% of overall health costs by 2031, down from the 50% some employers contribute now, according to Watson Wyatt research. “I’ve heard the concern that employers might be inclined to eliminate their coverage,” Joe Martingale, national strategy leader for health care at Watson Wyatt consultants, told Reuters. “If Congress wants to keep employers, they need to do something to make this benefit fair all around.”

The Senate bill covers half of drug costs up to $4,500 a year and then has a coverage gap until drug costs hit $5,800. Analysts say the bill inadvertently penalizes retirees and companies with good benefits because it does not include company payments on deductibles and co-insurance. This means seniors may struggle to reach the “catastrophic” threshold and could therefore end up paying a lot more out of pocket.