NCPA - National Center for Policy Analysis

Retiree Health Benefits Squeezed Due to Rising Costs

May 10, 2002

Hundreds of thousands of retired workers who used to have generous benefits from large corporations are having to dig deeper in their pockets this year. Surging inflation in medical costs is draining hundreds of millions of dollars from corporate profits, and many large employers are responding by cutting back on health care benefits for retirees or requiring them to pay more for coverage.

  • Drugs now account for 40 to 60 percent of employers' overall spending on retirees' health care -- mainly because Medicare pays most hospital and physicians' fees.
  • Retirees' drug expenses are causing corporations' health care costs to soar 18 percent annually.
  • Large companies' future liabilities for health care costs are rising as much as 34 percent.
  • Since accounting rules require companies to reflect their future health care liabilities as a reduction in current earnings, companies are trying to limit the damage to profits by demanding larger co-payments, raising deductibles and limiting coverage for retirees.

Source: Milt Freudenheim, "Companies Trim Health Benefits to Many Retirees as Costs Surge," New York Times, May 10, 2002


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