Four Out of Five Large U.S. Businesses To Continue Retiree Drug Benefits, Accept Medicare Drug Coverage Subsidies, Survey Finds

Nearly four out of five U.S. businesses that currently provide retiree health benefits will accept subsidies offered by the federal government to firms that continue to provide retiree prescription drug coverage equal to or better than the Medicare drug benefit, according to a new survey released Wednesday by the Kaiser Family Foundation and Hewitt Associates, Long Island Newsday reports. The Kaiser/Hewitt survey included responses from 300 large, private-sector companies with 1,000 or more employees that offer retiree health benefits (Luhby, Long Island Newsday, 12/8). The survey, which asked employers about their likely response to the Medicare drug benefit for their largest plan for retirees ages 65 and older, was conducted between June and October 2005, as companies were finalizing decisions about whether to continue providing retiree drug benefits (Kaiser Family Foundation/Hewitt Associates joint release, 12/7). The survey finds that 79% of employers that currently provide retiree health benefits will accept Medicare's financial incentives to continue providing retiree drug coverage (Long Island Newsday, 12/8). The incentives are tax-free financial subsidies equal to 28% of allowable drug costs between $250 and $5,000 per retiree in 2006 (Vrana, Los Angeles Times, 12/8). Ten percent of employers say they will provide some drug coverage to supplement the new Medicare coverage, and 9% say they will stop offering drug coverage to Medicare-eligible retirees, the survey finds (Long Island Newsday, 12/8). Among employers that plan to accept the Medicare subsidy in 2006, 82% say they are "very" or "somewhat" likely to accept the subsidy again in 2007 (Knowles, Chicago Sun-Times, 12/8). Fifty percent say they are likely to maintain coverage and accept the subsidy in 2010, according to the survey (Freking, AP/Hartford Courant, 12/8). Twenty-two percent say they are unlikely to accept the subsidy by 2010, and 28% say they do not know (CQ HealthBeat, 12/7).

Additional Findings
Among employers that report savings because of the Medicare drug benefit, the weighted average savings is $644 per individual retiree in 2006, the survey finds (Kaiser Family Foundation/Hewitt Associates joint release, 12/7). Firms that continue to offer retiree drug benefits and accept the government subsidy in 2006 report an average savings of $626 per individual retiree (Whitehouse, Dow Jones/Wall Street Journal, 12/8). Firms that will supplement the new Medicare drug benefit are reporting average savings of $826 for 2006 (AP/Hartford Courant, 12/8). Employers' responses to the drug benefit will result in median savings of 7% of total retiree health costs in 2005, including both employers' and retirees' share of the costs for both Medicare-age and early retirees, according to the survey (Kaiser Family Foundation/Hewitt Associates joint release, 12/7).

Implications for Retirees
The survey also finds that 29% of firms will drop both medical and drug coverage for retirees who enroll in a Medicare drug plan, while 31% say they will drop only drug coverage for retirees who enroll in the Medicare drug benefit (Crenshaw, Washington Post, 12/8). Forty-one percent of employers say they will maintain all employer-sponsored health coverage (CQ HealthBeat, 12/7). In addition, 56% of employers accepting the Medicare subsidy for their largest plan in 2006 say retirees will be allowed to enroll or re-enroll in the employer-sponsored drug plan at a later date if they enroll in a Medicare drug plan next year (Kaiser Family Foundation/Hewitt Associates joint release, 12/7). Forty-four percent of employers said retirees will not be able to do so (Saccone, Cox/Atlanta Journal-Constitution, 12/8). Eighty-nine percent of employers are distributing general education materials about the Medicare drug benefit to employees, 62% have a benefits or call center, 57% provide personalized communication beyond that required by law and 18% have human resources staff members focused on helping with issues related to the new Medicare coverage, the survey finds (Kaiser Family Foundation/Hewitt Associates joint release, 12/7).

Other Retiree Health Benefit Findings
The survey also finds that companies report an average increase of 10% in total retiree health costs between 2004 and 2005, including those provided to both Medicare-eligible retirees and early retirees, who do not qualify for Medicare (CQ HealthBeat, 12/7). Twelve percent of employers say they stopped offering retiree health benefits in 2005 for future retirees, largely newly hired workers (Washington Post, 12/8). In addition, 19% of companies require Medicare-eligible retirees to pay the full cost of premiums for their retiree health insurance coverage in 2005, compared with 11% who pay all premium costs for retirees. According to the survey, 63% of companies have enacted a cap on their future financial obligations for retiree health benefits in plans offered to Medicare-eligible retirees in 2005. Among the 49% of firms with such a cap on their largest plan, 59% say they have already reached the limit, and 27% say they will reach the limit within three years (Kaiser Family Foundation/Hewitt Associates joint release, 12/7). Between 2004 and 2005, 71% of companies increased retirees' premium payments and 34% increased copayments or coinsurance (Snowbeck, Pittsburgh Post-Gazette, 12/8). In addition, 24% increased annual deductibles and 19% increased the limit on retirees' out-of-pocket costs, according to the survey (Chicago Sun-Times, 12/8).

Comments
Foundation President and CEO Drew Altman said, "Most employers are accepting government subsidies and taking a wait-and-see attitude on the drug law" (Washington Post, 12/7). He added, "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" (Reuters, 12/7). Tricia Neuman, a foundation vice president and director of its Medicare Policy Project, said, "Seniors with retiree health benefits should consider their options carefully before signing up for a new Medicare drug plan. 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" (Los Angeles Times, 12/8). Frank McArdle, manager of Hewitt's Washington, D.C., research office, said, "For many reasons, taking the retiree drug subsidy is the strategy of choice for large companies in 2006, but they will continue to reassess their strategies moving forward as more experience develops with Medicare drug plans" (Kaiser Family Foundation/Hewitt Associates joint release, 12/7). He added, "Total savings from subsidies represent 7% of the estimated total for retiree health costs. This illustrates why cost pressures, in my opinion, are also going to remain intense even in the aftermath of the Medicare drug benefit. The savings are going to be significant and important, but the costs are going to be impressive as well" (Pittsburgh Post-Gazette, 12/8). Michelle Kitchman Strollo, a policy analyst for the foundation, said retiree health care costs will continue to rise, and companies will continue to shift costs onto retirees (Atlanta Journal-Constitution, 12/8).

Additional Reaction
CMS spokesperson Gary Karr said, "Health insurance and drug coverage has generally been declining the last 10 years. The drug subsidy was passed in part to stem the tide. It seems to me from the survey that seems to be working" (AP/Hartford Courant, 12/8). Lauren Vela, senior manager with the Pacific Business Group on Health, said employers "didn't want to disrupt their system with their retirees without really having a lot of time to evaluate their options. Potentially, we'll see more movement throughout 2006 for a new plan in 2007" (Colliver, San Francisco Chronicle, 12/8).

The study, an audiocast of the briefing to release the report and additional materials are available online.