Companies rapidly cutting retirees' health benefits

Social justice news
January 2005

CRS responds to tsunami emergency
Companies rapidly cutting retirees' health benefits
Food aid cuts jeopardize anti-poverty programs
January is CCHD's poverty awareness month
National Migration Week set for January 2-8
Pope's peace message has special implications for United States
Torture survivors opppose Gonzales nomination
Tsunami debt relief must be first of many in 2005
UN launches appeal for tsunami victims

Companies rapidly cutting retirees' health benefits
As businesses struggle to control rising retiree health costs, they are asking their retirees to pay more and plan to do so again in 2005, according to a new survey of many of the nation’s largest employers conducted by the Kaiser Family Foundation and Hewitt Associates.

"The prospects for retiree health coverage are slowly disappearing for America's workers, and retirees who have it will be paying more," Foundation President Drew E. Altman, Ph.D., said.

The survey found that firms providing retiree health benefits experienced cost increases averaging 12.7 percent in 2004, with employers and retirees sharing these cost increases at most firms. The survey also found that a typical worker under age 65 who retired in 2004 would pay $2,244 annually in premiums ($4,644 with spousal coverage)—27 percent more than a similar worker who retired in 2003. A typical Medicare-eligible worker who retired in 2004 would pay $1,212 annually in premiums ($2,508 with spousal coverage)—24 percent more than in 2003.

The Kaiser/Hewitt study analyzed responses from 333 large private-sector firms (1,000 or more employees) that offer retiree health benefits and was conducted from May to September 2004. The survey comes at a time when fewer employers are offering retiree health benefits and their costs are an issue in labor negotiations. In addition, many firms are weighing potential options in anticipation of the new Medicare drug benefit to take effect in 2006.

Changes in retiree benefits
The survey found that 8 percent of employers surveyed said that, in 2004, they had eliminated subsidized health benefits for future retirees. For 2005, only a small fraction of firms (1 percent) said they are likely to terminate subsidized coverage for current retirees, but 11 percent said they are likely to terminate coverage for future retirees. Most of these terminations are expected to affect new hires only.

Surveyed employers reported that they have made or plan to make the following changes to control costs:

79 percent increased their retirees’ contributions for premiums in the past year, and 85 percent expect to do so in the coming year;

53 percent increased co-payments or co-insurance for prescription drugs in the past year, and 49 percent expect to do so in the coming year;

37 percent raised deductibles for health care services in the past year, and 43 percent expect to do so in the coming year;

29 percent raised out-of-pocket limits on retirees’ obligations in the past year, and 37 percent expect to do so in the coming year; and

13 percent changed their plans in the past year to offer retirees access to group health benefits with retirees paying 100 percent of the costs, and 18 percent expect to do so in the coming year.

Overall, more than half of surveyed employers (54 percent) have imposed financial caps on their firms’ contributions to at least one retiree health plan offered in 2004. Caps have become more common since changes in Financial Accounting Standards Board rules in the early 1990s required firms to account for retiree health obligations on an accrued basis. Such caps often require retirees to absorb a greater share of costs once the cap is reached, although some firms report taking steps to soften the impact of the cap on retirees by offering additional, lower-cost plan options.

For firms that have a cap on their largest health plan for retirees who are too young to receive Medicare, 53 percent have already hit the cap and 28 percent anticipate hitting the cap in the next one to three years. For firms with a cap on their largest retiree health plan for Medicare-eligible retirees, 56 percent have already hit it and another 27 percent anticipate hitting the cap in the next one to three years.

The Kaiser Family Foundation is a non-profit, private operating foundation dedicated to providing information and analysis on health care issues to policymakers, the media, the health care community, and the general public. The Foundation is not associated with Kaiser Permanente or Kaiser Industries.

With more than 60 years of experience, Hewitt Associates (NYSE:HEW) is the world's foremost provider of human resources outsourcing and consulting services. The firm consults with more than 2,300 companies and administers human resources, health care, payroll and retirement programs on behalf of more than 300 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 19,000 associates. For more information, please visit www.hewitt.com.

Back to page top