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Retirees To Pay More for Health Care Coverage

Employers will pick up less than 10 percent of total retiree medical expenses by 2031, new Watson Wyatt study finds.
Stephen Taub, | US
September 17, 2002

Future retirees will probably pay much more of their health care benefits -- if not all -- according to a new study by Watson Wyatt Worldwide.

Under plan provisions already adopted by many businesses, employers will pick up less than 10 percent of total retiree medical expenses by the year 2031, according to the study. Today, large employers typically pay more than 50 percent of total retiree medical expenses, the consulting firm estimates.

"The net result of skyrocketing medical costs and public policy has been to render retiree health benefits economically irrational," says Sylvester J. Schieber, Ph.D., vice president and director of research at Watson Wyatt and one of the study's co-authors. "The burden on future retirees to pay their own medical costs is increasing dramatically and far too few employees are prepared for these looming changes."

In fact, 22 percent of the employers studied have already eliminated retiree medical plans for new hires altogether. Another 17 percent will require new hires to pay the full premium for coverage.

Other employers are capping their contributions, linking contributions to the retiree's length of service or imposing stricter minimum service requirements for future retirees.

According to the study, there are a number of reasons why retirees are seeing their health benefits shrink. The list includes escalating health care costs, growing retiree populations, uncertain business profitability, and federal regulations that discourage employers from pre-funding retiree medical benefits.

The study is based on analysis of data from nationally representative surveys of the population and employers, augmented by an examination of actual plan characteristics from a sample of 56 large employers with at least 5,000 employees.

According to Watson Wyatt, employers have seized upon a variety of tactics to cut the health benefits of future retirees. Those methods include: