Study: Medicare Drug Reforms Would Cut Retiree Health Coverage

October 8, 2003 ( - Lawmakers' efforts to add prescription drug coverage to Medicare would lead to more employers dropping retiree health coverage, a new study concludes.

A study by Emory University economist Ken Thorpe, estimated that a third of Medicare beneficiaries who now have supplemental health insurance from a former employer would lose it if versions passed out of the United States House of Representatives and US Senate last summer (See US Lawmakers Give Thumbs Up to Medicare Reform Measures ) become law, Reuters reported. About a third of Medicare enrollees now have such coverage.

The key reason for the likely decline, said Thorpe, is the decision made by lawmakers to try to focus limited resources on those who don’t have any coverage for their outpatient prescription drugs. But the decisions based on that priority, he said, “result in lower federal subsidies to employers,” which, in turn, gives them an incentive to drop drug coverage they currently offer.

Because drug spending represents more than half of most retirement health packages (because Medicare already picks up most physician and hospital bills), “once the drug benefit goes, the incentive is pretty high” for employers to stop offering the remaining coverage as well, Thorpe said, according to the Reuters story.

The Congressional Budget Office, using a different estimating model, has also concluded that retiree coverage would decline by about a third under the House or Senate bill (See Medicare Reforms Could Prompt Retiree Health Coverage Exodus ). Several members of the Congressional conference committee trying to hash out differences between the versions have said they are hearing loud complaints from seniors back home who are fearful they will be worse off than they are now if either of the bills becomes law.