Most Large Employers to Continue Retiree Rx Coverage

December 13, 2006 ( - A new survey of large employers by the Kaiser Family Foundation and Hewitt Associates has found 78% expect to continue prescription drug coverage for their retirees in 2007 and accept the Medicare Part D subsidy to help with costs.

According to a press release on the survey, the number planning to take the subsidy in 2007 is down from 82% of firms who said they did so in 2006. Medicare Part D offers tax-free subsidies to firms that provide their Medicare-eligible retirees with drug coverage that is at least as generous as the standard Medicare benefit (See HHS Releases Final Medicare Drug Subsidy Regs ).

About 8% of surveyed firms said they will not offer drug coverage to Medicare-eligible retirees in 2007, the release said. The remaining respondents said they will choose other strategies in response to the Medicare drug benefit.

The survey results provide a warning for people with employer-sponsored retiree health coverage considering signing up for a Medicare drug plan. Over one third (36%) of firms accepting the subsidy in 2007 said retirees would lose all retiree medical coverage if they enroll in a Medicare drug plan, while 32% said retirees would lose their drug coverage only.

In addition, 82% of employers continuing to take the subsidy in 2007 said if a retiree opts to enroll in a Medicare drug plan, their spouse would not be allowed to keep employer-sponsored coverage. More than half (57%) would not allow retirees to rejoin the company plan in the future once they have enrolled in a Medicare drug plan.


Surveyed employers reported taking a number of steps in 2006 that increased what retirees pay for health benefits. According to the release:

  • 74% of firms increased premiums for retirees under age 65, while 58% raised premiums for Medicare-eligible retirees.
  • 34% of firms raised cost-sharing requirements for under-65 retirees, and 24% did so for Medicare-eligible retirees.

For 2007, surveyed firms said they are very likely to increase retiree contributions to premiums (64%), increase cost-sharing requirements (26%), raise drug co-payments (20%), and raise out-of-pocket limits (18%).

Between 2005 and 2006, 11% of surveyed employers eliminated benefits for a group of future early retirees and 9% did the same for a group of future Medicare-eligible retirees. Looking to 2007, 10% of firms said they are very or somewhat likely to eliminate subsidized coverage for some future retirees.

Current retirees fare better regarding benefit terminations as no surveyed firms eliminated benefits for early retirees between 2005 and 2006, and only 1% did so for Medicare-eligible retirees. Only 2% of surveyed employers said they are very or somewhat likely to end subsidized coverage for current retirees in 2007.


The survey also assessed the cost of retiree health coverage for new retirees and found, for workers under 65 who retired this year, the total premium (retiree and employer contributions) for retiree-only health coverage was $6,624 per year on average in the firm's largest plan, of which the retiree paid $2,724. For Medicare-eligible workers who retired in 2006, the survey found a coverage cost of $3,240 per year on average in the firm's largest plan, of which the retiree paid $1,320. Overall surveyed employers reported a 6.8% increase in total retiree health costs between 2005 and 2006.

When asked whether senior managers at their company thought the federal government should play a larger role in financing retiree health benefits for early retirees, 54% said they opposed a larger government role and 46% said they favored it. Those who favored a growing government role expressed support for policy changes to expand tax-favored funding opportunities for employers (72%), allow tax-free transfer of individuals' retirement funds to pay for health care (66%), and allow early retirees to buy into Medicare and pay the full cost (61%).

Survey results were based on the responses of a non-random sample of 302 large private-sector firms (with 1,000 or more employees) that currently offer health benefits to retirees. The full survey report can be accessed here .