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Most Large Employers Plan to Maintain Drug Coverage for Medicare Retirees over Next 2 Years

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Published: February 2007

Kaiser/Hewitt 2006 Survey

Having entered the 2nd year of the new Medicare drug benefit, nearly 8 in 10 large employers, those with 1,000 or more employees, expect to continue to offer drug coverage to their retirees and accept the Part D subsidy from the federal government to offset some of those costs, according to a new survey of 302 large private-sector employers conducted by the Kaiser Family Foundation and Hewitt Associates.

At the same time, out-of-pocket costs for retirees covered by these plans will likely continue to rise for their employer health coverage in 2007. This increase reflects last year’s trends where 74 percent of employers increased the premiums retirees under age 65 pay, while 58 percent raised premiums for Medicare-eligible retirees. Similarly, 34 percent of employer firms raised cost-sharing requirements for under-65 retirees, and 24 percent did so for Medicare-eligible retirees in 2006. These firms collectively account for more than one quarter of the 12 million Medicare beneficiaries with retiree health benefits nationally and nearly half of the 7.2 million beneficiaries with private-sector retiree health coverage.

For 2007, surveyed firms say they are likely to make a number of additional changes that would result in retirees paying more, such as: increasing retiree contributions to premiums (64 percent); increasing cost-sharing requirements (26 percent); raising drug co-payments (20 percent) and raising out-of-pocket limits (18 percent).

Surveyed firms report increasing retiree contributions for new retirees in their largest plan between 2005 and 2006, with an average increase of 15.1 percent for new retirees under age 65 and 9.6 percent for new retirees age 65 and older. New retirees include the group of workers who retired on or after January 1, 2006. As Kaiser President and CEO, Drew Altman said, “People who worked their whole lives to earn retiree health coverage are now having to dig deeper into their pockets to pay for it.”

The survey also found that about one in 10 firms are eliminating retiree health benefits for future retirees. Such changes typically affect newly hired workers, but sometimes affect certain groups of existing workers who are not yet eligible for retirement. Also, for the most part, current retirees are not generally affected by these changes for future retirees. Between 2005 and 2006, no surveyed firms eliminated benefits for early retirees, and only 1 percent did so for Medicare-eligible retirees. For 2007, only 2 percent of surveyed employers say they are very or somewhat likely to end subsidized coverage for current retirees.

The Kaiser/Hewitt study, the 5th joint survey since 2002, analyzes responses from a non-probability sample of businesses with 1,000 or more employees that offer retiree health benefits. The survey was conducted online between June and October 2006. The full report is available online.

This article is edited from the 2006 Kaiser/Hewitt Retiree Health Benefits Survey News Release, December 13, 2006.

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