Health Insurance Coverage ‘Shrinking’ for Many Retirees

Although millions of Americans rely on health insurance from their employers after they retire, the Hartford Courant suggests that "[m]aybe they shouldn't," as many employers are "increasingly cutting back on retiree health care programs." Many Americans who "paid little or nothing" for employer-sponsored insurance after retirement, "are now digging deeper into their pockets than they ever imagined, watching their premiums and co-pays rise and prescription coverage shrink," the Courant reports. In addition, many employers will not offer employees and future hires any company-sponsored health coverage after retirement, citing mounting health care costs and a "need to protect their profits and remain competitive." Experts note, however, that employers will likely "make cutbacks" in retiree health plans rather than "cancel them outright," while they will likely force current employees and future hires to purchase their own health insurance. Last year, just 24% of employers with 500 or more employees offered insurance to retirees on Medicare, down from 40% in 1993, according to a William M. Mercer Co. survey. In addition, only 31% of employers last year provided health insurance to retirees under age 65, down from 46% in 1993, and smaller companies "are even less apt to have retiree coverage," experts said. The Courant also reports that the "troubling" trend will likely prompt "prohibitively high prices" for "middle-agers" purchasing their own health insurance.

High Cost of Coverage
According to the Courant, employer-sponsored health coverage began "shrinking" when a new accounting rule, "FASB 106," forced employers to "start reflecting the expected future cost -- millions, and in some cases, billions -- on their financial statements" by 1993. "That certainly precipitated a lot of people to start ratcheting down these plans," Ray Linstrum, a senior health care consultant at Mercer's Stamford office, said. In recent years, "newer, more expensive" prescription drugs and an "aging nation" have also fueled the trend. Last year, the average cost to insure retirees under 65 and their dependents through an employer-sponsored plan "jumped" 10.5% to $5,537, while the cost for retirees on Medicare "leaped" 17% to $2,319, Mercer found. Hewitt Associates added that during the 1990s, more large employers who had paid the entire premium in previous years began requiring "Medicare-age retirees" to cover at least part of the cost. In addition, some employers "raised the hurdles" for retirees to qualify for health coverage by increasing "age and years-of-service requirements," Hewitt said.

Fighting Back
Retirees, however, have begun to "figh[t] back" in the courts and Congress, hoping to "wake up" Americans with a "warning not to take insurance for granted." To tackle the problem, Rep. John Tierney (D-Mass) plans this week to reintroduce a bill that would prevent employers with more than 100 employees from "canceling or reducing health plans for workers who have already retired." The bill would also force employers to "restore" benefits "taken away from retirees unless the companies can prove hardship," Michael Gordon, a Washington lawyer who helped draft the bill, said. "It's difficult to understand, given the sophistication and degree of expertise in bringing these plans about, why we have to have a system that does about as much harm to retirees as it does good," he said (Levick, Hartford Courant, 3/25).