Most U.S. employers are planning to
further scale back health benefits offered to retirees, as
companies struggle with the upward march in the cost of medical
care and weigh increased contributions from the government's
Medicare program, a survey found.
Ninety-five percent of the mostly Fortune 500 companies
polled expect to further restrict their retiree health plans
over the next five years, and 14 percent plan to stop providing
coverage entirely, the survey of 163 companies by benefits
consultants Watson Wyatt found.
Employers have been exiting the retiree health business for
a decade-and-a-half, amid rapid inflation in the cost of health
care and increasing mobility of workers. But some feared the
pace would quicken amid recent changes that boost benefits
provided by Medicare, the government's health insurance program
for the nation's 43 million elderly and disabled people.
"There is definitely more change in the air now that
Medicare Part D has come into play. There are fewer companies
that are not planning on doing anything at all," said Cara
Jareb, director of retiree medical at Watson Wyatt. "The
willingness to eliminate the benefit is clearly increasing."
Changes in the Medicare program include adding prescription
drug benefits, known as Medicare Part D. Experts feared that
with a richer government benefit, employers would be more
likely to stop offering coverage.
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
According to Standard & Poor's, plans for retiree benefits
at S&P 500 companies, excluding pensions, were underfunded by
$321 billion, meaning promises to retirees are only 22 percent
EMPLOYERS WEIGH EXITING
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.
"The question is, is the bribe enough?," said Mark Pauley,
a health economist at the Wharton School at the University of
Pennsylvania. "My distinct impression is that a fair number of
employers did adjust their own contributions around the
Medicare benefit. But the numbers completely abandoning it are
Most companies 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
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 continue 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. Jareb
said it showed that even though companies might think exiting
the business would help with costs, most are unlikely to do it
at this point.
"In essence the numbers indicate that -- whether due to
employee relations, benefits philosophy or collective
bargaining -- exiting retiree heath is not a viable option for
the majority of employers" the study said.
Additional reporting by Emily Chasan in New York and
Joanne Kenen in Washington
Copyright © 2006 Reuters Limited