Companies Retain Retiree Drug Benefits for Now
By Albert B. Crenshaw, Staff Writer
Thursday, December 8, 2005
The launch next year of Medicare's new prescription drug
program is not prompting companies that offer retiree drug
benefits to drop those benefits -- at least in the short
run. But many employers are unsure what they will do a few
years from now when it comes to prescription drug benefits,
according to a new study of the programs and plans of large
In the meantime, a steady exodus of employers from retiree
health insurance overall continues, the study by the Kaiser
Family Foundation and benefits consultants Hewitt Associates
Under the new Medicare law, employers that offer benefits as
good as or better than the government's can obtain a subsidy
if they continue their own programs. That's what about four
in five big employers say they will do next year.
"Most employers are accepting government subsidies and
taking a wait-and-see attitude on the drug law" said Drew E.
Altman, president of the Kaiser Family Foundation, which,
along with Hewitt, surveyed some 300 large employers.
"The widespread dropping of drug benefits that some had
feared has been averted so far as businesses figure out what
their longer-term response will be," Altman said in a
statement released with the study yesterday.
"This is mostly good news for retirees," said Tricia Neuman,
one of the study's authors. But, she added, "employers will
no doubt revisit this issue in future years."
Even so, some 9 percent of companies now offering
prescription drug benefits to Medicare-eligible retirees
said they would stop doing so next year, and another 10
percent said they would provide limited drug coverage to
In addition, the interaction of Medicare and company medical
plan rules can create a potential pitfall for retirees, the
study said. Retirees themselves have the option of signing
up for the new Medicare Part D, but under the rules of about
two-thirds of companies, doing so will cause them to lose
some or all of the employer-sponsored medical insurance.
At about 29 percent of companies, retirees who sign up for
Medicare drug coverage will lose not only their employer's
drug coverage but all of their employer-provided medical
insurance. At another 31 percent, signing up for Medicare
Part D will cause retirees to lose the company's drug
"For retirees with employer coverage, informed
decision-making is especially important," the study said.
"Many are concerned that some retirees -- faced with a
fairly significant change in their Medicare options -- may
sign up for a Medicare prescription drug plan without
realizing the potential consequences in terms of forfeiting
their employer-sponsored benefits."
Looking past next year, many companies expressed doubt that
they would continue to offer drug benefits and accept the
subsidy, which generally amounts to about 28 percent of the
employer's costs. For 2007, half said they were very likely
to continue to offer coverage and take the subsidy, and
another 32 percent they were somewhat likely to do so. But
for 2010, only 20 percent said they were very likely to
continue providing prescription drug benefits and taking the
subsidy; another 30 percent were somewhat likely to do
that. Some 22 percent were very or somewhat likely not to,
and the rest did not know.
However, it is hard to tell what the consequences will be
for retirees, said Frank McArdle of Hewitt, another of the
authors. If an employer simply shifts to supplementing
Medicare drug benefits instead of providing them itself,
retirees might not see a difference, he said.
A goal of the study was to set a base line by which retiree
health insurance can be measured. Some 3.6 million retirees
and dependents ages 55 to 64 -- too young for Medicare --
now receive health coverage through a former employer or
union, and more than 12 million retirees on Medicare use
employer-sponsored coverage to fill Medicare's gaps or help
with out-of-pocket costs.
However, over the past 25 years there has been a major
decline in the willingness of employers to provide such
insurance. Between 1988 and 2005, the percentage of
companies with 200 or more employees providing health
coverage to retirees declined from 66 percent to 33
percent. And the study found that in just the past year 12
percent of the companies surveyed had eliminated retiree
health care coverage for future retirees, most commonly only
for new hires.