Trends: Trends In Retiree Health Benefits

Based on national surveys of employers from 1988 through 2001 and recent key-informant interviews, this paper examines trends in employer-based retiree health benefits. We assess trends in the availability of coverage to early and Medicare-eligible retirees, the cost of coverage, plan choice and enrollment, prescription drug coverage, and recent changes in plan design. During a period of low health care inflation and record prosperity, retiree coverage declined slightly, unlike the coverage of active workers. Indemnity enrollment remains strong among retirees, and employers are cautious about Medicare+Choice because of continuing plan withdrawals. Numerous indicators point to a further and accelerating decline in retiree coverage. R et iree health benef its provide financial protection for four million retirees under age sixty-five and for twelve million Medicare-eligible retirees.1 Employer-based coverage is generally more comprehensive and affordable than is coverage purchased individually. In 1999 annual out-of-pocket costs for Medicare beneficiaries with Medigap coverage were approximately $3,400, versus $2,200 for those with employer-sponsored supplemental coverage.2 The availability of health insurance is often a critical factor in retirement decisions.3 Retiree coverage for Medicare-eligible persons is closely intertwined with prescription drug coverage. Roughly 40–60 percent of all health care expenses incurred by employers for this population are for prescription drugs, and employer coverage is the source of drug coverage for 46 percent of Medicare beneficiaries with a single source of drug coverage.4 Retiree coverage generally provides better financial protection than do alternative forms of private insurance for drug expenses. In 1998 Medicare beneficiaries with retiree coverage from an employer paid just 26 percent of their prescription drug expenses out of pocket; beneficiaries who had drug coverage through Medigap and Medicare managed care paid 67 and 40 percent, respectively.5 Hence, any diminution of retiree coverage means that greater numbers of Medicare beneficiaries will be exposed to the financial risk associated with high prescription drug costs. Rising costs have contributed to a declining percentage of firms offering retiree coverage.6 Many employers have already instituted an array of incremental cost-savings approaches over the years—increased cost sharing, reduced benefits, and financial incentives to select certain types of plans—so that they can continue offering coverage. Employers impleT r e n d s H E A LT H A F F A I R S ~ V o l u m e 2 1 , N u m b e r 6 1 6 9 ©2002 Project HOPE–The People-to-People Health Foundation, Inc. Lauren McCormack is a senior research associate and Wayne Anderson, a research health analyst, at RTI International, a trade name of Research Triangle Institute, in Research Triangle Park, North Carolina. Jon Gabel is vice-president, health systems studies, at the Health Research and Educational Trust in Washington, D.C. Heidi Whitmore is a senior research associate there, and Jeremy Pickreign is a statistician. on S etem er 0, 2017 by H W T am H ealth A fairs by http://conealthaffairs.org/ D ow nladed fom mented these measures during the 1990s, a period of low health care inflation and record economic growth. As a result of the economic downturn that began in 2001 and double-digit insurance premium increases, employers are facing difficult decisions about whether to continue offering coverage and in what form. The factors that motivate employers to offer coverage to retirees may not be sufficient to withstand mounting financial pressures. Employers may consider alternative funding arrangements including defined-contribution approaches, but most have been reluctant to adopt these.7 In this paper we examine recent trends in the percentage of firms offering health insurance to retirees as well as those who have dropped this coverage altogether. We report the costs of coverage to both the employer and the retiree, including differences between retirees under and over age sixty-five. We discuss changes in plan choice and employers’ attitudes toward Medicare+Choice (M+C). Finally, we describe the changes employers have made recently and are planning in the near term.