NCPA - National Center for Policy Analysis


February 27, 2006

America's largest companies expect the federal government to pay them about $4 billion over the next four years to help keep their retiree health plans alive, according to a new study by Credit Suisse First Boston.

When Congress authorized the Medicare drug benefit, it also agreed to start subsidizing the drug component of employers' retiree health plans, to keep them from shifting their retirees onto the government program.

With the program just starting its first year, it is not yet clear whether the subsidy will achieve its goals, say the researchers:

  • There are about 36 million people 65 and older who are eligible for Medicare but only about 7 million retirees currently covered by employer-sponsored health plans.
  • The money will flow to some financially weaker companies but there are also thriving businesses which seem able to afford their health plans but will nonetheless receive the federal payouts.
  • The government is not drawing distinctions because the subsidy is only meant to help employers stay in the retiree health care business, not direct public funds to the neediest employees; so far, employers covering 6.4 million retirees have enrolled for the subsidy.

To get the new subsidy, a company must offer retirees a prescription drug benefit that is at least as valuable as the minimum Medicare benefits. Credit Suisse analysts found that the big companies, over the life of their retiree health plans, expected to receive about $25 billion from the federal subsidy.

However, Mark Hamelburg, of the Centers for Medicare and Medicaid Services, says the companies' estimates did not capture the entire outlay expected because they did not include the substantial subsides for state and local governments that run retiree health plans. The government expects to pay all employers, private and public, about $14 billion over the next four years.

Source: Mary Williams Walsh, "U.S. to Pay Big Employers Billions Not to End Their Retiree Health Plans," New York Times, February 24, 2006.

For text:


Browse more articles on Health Issues