NCPA - National Center for Policy Analysis

COMPANIES DIVIDED ON COVERING RETIREES' DRUGS WHEN MEDICARE DOES

December 22, 2004

As businesses struggle to control rising retiree health costs, they are asking their retirees to pay more and plan to do so again in 2005, according to a new survey of many of the nation's largest employers conducted by the Kaiser Family Foundation and Hewitt Associates.

Surveyed employers reported that they have made or plan to make the following changes to control costs:

  • 79 percent increased their retirees' contributions for premiums in the past year, and 85 percent expect to do so in the coming year.
  • 53 percent increased copayments or coinsurance for prescription drugs in the past year, and 49 percent expect to do so in the coming year.
  • 37 percent raised deductibles for health care services in the past year, and 43 percent expect to do so in the coming year.
  • 29 percent raised out-of-pocket limits on retirees' obligations in the past year, and 37 percent expect to do so in the coming year.
  • 13 percent changed their plans in the past year to offer retirees access to group health benefits with retirees paying 100 percent of the costs, and 18 percent expect to do so in the coming year.

Overall, more than half of surveyed employers (54 percent) have imposed financial caps on their firms' contributions to at least one retiree health plan offered in 2004. Caps have become more common since changes in Financial Accounting Standards Board rules in the early 1990s required firms to account for retiree health obligations on an accrued basis. Such caps often require retirees to absorb a greater share of costs once the cap is reached, although some firms report taking steps to soften the impact of the cap on retirees by offering additional, lower-cost plan options.

Source: Kelly Greene, "Companies Divided on Covering Retirees' Drug Costs When U.S. Does," Wall Street Journal, December 15, 2004.

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