Increasingly, retiree benefits are under attack.
As more and more companies pare the benefits of their current employees, many businesses are also targeting the benefits of their former workers — workers who assumed they had a covenant for life.
According to a survey of large U.S. companies by the Kaiser Family Foundation and Hewitt Associates, nearly half (44 percent) of employers offering retiree health benefits have increased retiree contributions to premiums. Over a third (36 percent) have increased cost-sharing requirements.
Specifically, the average retiree contribution rose 19 percent for retirees under 65 years-old and 20 percent for retirees over 65 between 2001 and 2002, according to the survey.
The trend is expected to continue. Although 95 percent of the large companies participating in the survey said they will continue to provide health care coverage to current retirees, 82 percent said they expect to increase the retiree’s premiums. About 85 percent plan to raise prescription drug co-payments or coinsurance over the next three years.
More ominous for current workers: 22 percent of the respondents say they are likely to eliminate retiree coverage for future retirees (often new or recent hires) within the next three years, according to the survey.
In fact, 13 percent of the companies say they terminated benefits for future retirees over the past two years.
Interestingly, 78 percent say they are likely to continue offering prescription drug coverage even if Congress enacts a comprehensive Medicare drug benefit.
“This study is the latest bad news for American workers on the health care front,” said Drew Altman, Ph.D., president and CEO of the Kaiser Family Foundation. “Current retirees are being asked to pay more for their health coverage and current workers are less likely to get health benefits from their employer when they retire.”
The study is based on a survey of 435 large private-sector companies (1,000-plus employees) that currently offer retiree health benefits, including 28 percent of all Fortune 500 companies.
Most of the surveyed private-sector businesses that offer retiree coverage (91 percent) cover both pre-65 retirees and those age 65 and over. In addition to retirees, large employers generally provide health benefits for the spouses of retirees (91 percent), other dependents (69 percent) and, to a lesser extent, part-time workers (35 percent).
Eligibility generally depends on meeting a minimum combination of age and length of service, with the most common requirements being age 55 with 6 to 10 years of service.
Most surveyed employers offer a choice of health plans, but pre-65 retirees typically have greater choice of plans (often the same plan choices as current employees); age 65-plus retirees’ plans generally coordinate with Medicare.
The majority of employer plans have an annual limit on retirees’ out-of-pocket costs for covered services, with the most common limits at $1,500 for single retiree coverage and $3,000 for retirees and spouses.
Virtually all employers that offer retiree health benefits (96 percent) cover prescription drugs. Among those, only 11 percent impose a separate limit on drug coverage.