Facing rising medical care costs and an evolving Medicare program, U.S. employers plan to significantly reduce health benefits offered to retirees, according to results from a recent survey by global benefits consultants Watson Wyatt.
More than 150 companies -- most of them Fortune 500 companies -- were included in the survey, and 95 percent of those polled said they expect to further trim their retiree health plans over the next five years. Fourteen percent plan to stop providing coverage entirely.
Recent changes to the government health insurance program have added to the growing trend. Medicare Part D offers prescription drug benefits to the nearly 45 million seniors and disabled adults living in the U.S., and many soon-to-be retirees fear that it might be enough incentive for companies to eliminate coverage altogether.
About a third of U.S. employers offered current workers retiree coverage in 2005, down from about two-thirds in 1988, according to a recent study by the nonprofit Kaiser Family Foundation.
According to Standard & Poor's, plans for retiree benefits -- excluding pensions -- at S&P 500 companies were underfunded by $321 billion, meaning promises to retirees are only 22 percent funded.
About three-quarters of U.S. companies polled are accepting a Medicare subsidy from the government intended to keep employers in the business of helping workers defray health costs when they retire, but most are skimming the benefits they do offer. A quarter of employers are tightening eligibility for current workers, and a similar amount are offering more expensive plans.
About 40 percent of employers said they believed the best way to solve their retiree health cost problem is to exit it altogether, although most continued to offer benefits because of practical considerations, the study found. The same amount, about 40 percent, said taking the government subsidy is the best way to keep costs down.
