Employers continue offering drug coverage as Medicare benefits Near 2nd year

Out-of-Pocket Costs for Retirees Continue to Rise for Employer Health Coverage

About One in 10 Firms Eliminate Retiree Health Benefits for Future Retirees

As the new Medicare drug benefit nears its second year, nearly eight in 10 large employers expect to continue to offer drug coverage to their retirees and accept subsidies from the federal government to offset some of those costs, according to a new survey of 302 large private-sector employers conducted by the Kaiser Family Foundation and Hewitt Associates.

At the same time, surveyed employers report taking a number of steps in 2006 that increase what retirees themselves pay for health benefits. For example, in 2006, 74 percent of firms increased premiums for retirees under age 65, while 58 percent raised premiums for Medicare-eligible retirees. Similarly, 34 percent of firms raised cost-sharing requirements for under-65 retirees, and 24 percent did so for Medicare-eligible retirees.

Looking ahead to 2007, surveyed firms say they are very likely to make a number of additional changes that would result in retirees paying more: increase retiree contributions to premiums (64 percent); increase cost-sharing requirements (26 percent); raise drug co-payments (20 percent) and raise out-of-pocket limits (18 percent).

Surveyed firms report increasing retiree contributions for new retirees in their largest plan between 2005 and 2006, with an average increase of 15.1 percent for new retirees under age 65 and 9.6 percent for new retirees age 65 and older. New retirees include the group of workers who retired on or after January 1, 2006.

"People who worked their whole lives to earn retiree health coverage are now having to dig deeper into their pockets to pay for it," Kaiser President and CEO Drew E. Altman said.

The Kaiser/Hewitt study, the fifth joint survey since 2002, analyzes responses from a non-probability sample of businesses with 1,000 or more employees that offer retiree health benefits. These large firms collectively provide health benefits for 5.2 million retirees and dependents, including 3.4 million Medicare-eligible retirees. Together they account for more than one quarter of the 12 million Medicare beneficiaries with retiree health benefits nationally and nearly half of the 7.2 million beneficiaries with private-sector retiree health coverage. The survey was conducted online between June and October 2006.

Retiree Health Costs

The survey also assesses the cost of retiree health coverage for new retirees. 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, their coverage cost $3,240 per year on average in the firm's largest plan, of which the retiree paid $1,320.

Overall, surveyed employers report a 6.8 percent increase in total retiree health costs between 2005 and 2006