Now that a government-sanctioned prescription drug program is available for seniors, how will companies that provide benefits for their retirees respond? Will they continue to provide coverage, apply for the government subsidy, or relinquish that retiree benefit altogether? If you have clients who receive benefits through a company-sponsored retiree plan, you should advise them to find out about any changes.
Coverage options
According to a Kaiser Family Foundation/Hewitt Associates survey, four in five businesses that currently provide health benefits for their retirees say they will accept government subsidies in order to provide coverage that's at least as good as the new Medicare coverage. Ten percent of companies say that they will provide some drug coverage to supplement the new Medicare benefit, while only 9 percent say that they plan to stop offering drug coverage to Medicare-eligible retirees. These findings come from a survey of 300 of the nation's largest private-sector employers.
The survey also finds that many firms that plan to accept the subsidy have policies in place that will affect retirees who enroll in a Medicare drug plan on their own. Among these employers, nearly three in 10 (29 percent) say that retirees who sign up for a Medicare plan would lose both employer-sponsored medical and drug coverage if they enroll in a Medicare prescription drug plan, and a similar share (31 percent) say retirees would lose prescription drug coverage only and retain their other benefits. The remaining firms (41 percent) say that retirees would retain all employer-sponsored coverage.
While more than half of the employers (56 percent) accepting the Medicare subsidy for their largest plan in 2006 say retirees would be allowed to enroll or re-enroll in the employer's plan at a future date if they sign up for a Medicare drug plan, 44 percent of employers say retirees would not be able to return in the future.
Most large employers are active in educating their Medicare-eligible retirees about their options under the new Medicare drug plan. "Seniors with retiree health benefits should consider their options carefully before signing up for a new Medicare drug plan," said study co-author Tricia Neuman, a Foundation vice president. "Most retiree plans offer more comprehensive benefits than Medicare, and retirees who drop employer-sponsored coverage may not be able to pick it up again later."
What retirees pay
A typical Medicare-eligible worker retiring in 2005 pays $1,536 annually toward their individual retiree health insurance premiums for the plan that has the largest number of Medicare-eligible retirees; the employer pays the remaining $2,544 of the $4,080 total premium. The retiree's 2005 share was about 10 percent more than it was in 2004.
About one in five firms require newly Medicare-eligible retirees in 2005 to pay the full cost of premiums for their retiree health insurance coverage, essentially providing the retiree access to an unsubsidized group plan. Eleven percent of firms pay the full premium costs for their retirees.
To help alleviate cost pressures on the company, employers have adopted a number of cost-containment strategies, some of which shift costs directly to retirees. Nearly two-thirds of firms (63 percent) have a cap on their future financial obligations for retiree health benefits in plans offered to Medicare-eligible retirees in 2005. Among the half (49 percent) of firms with a cap on the largest plan available to their Medicare-eligible retirees, almost six in 10 (59 percent) said that they have already hit the cap, and another 27 percent say they expect to hit the cap within the next three years.
Collectively, the firms surveyed provide health benefits for 5.7 million retirees and dependents and for 15.8 million workers and dependents.
Source: Kaiser Family Foundation/Hewitt Associates survey
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