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Cost of private retirement health benefits will be increasing

WASHINGTON—Retirees who've been paying more for their steadily eroding health benefits can expect more of the same in the coming year.

A national survey of 302 large private employers found that nearly two out of three will increase premiums for retirees in 2007. Others plan to increase drug co-payments and out-of-pocket costs.

The findings from the annual survey by The Kaiser Family Foundation and Hewitt Associates suggest that the trend of shifting higher health costs to patients isn't abating.

"Retirees may be able to retain their (private) health coverage in the near future, but they will pay more for it," said Tricia Neuman, Kaiser foundation vice president and director of its Medicare Policy Project.

In 2006, about three out of four firms raised premiums for retirees under age 65, while 58 percent increased premiums for Medicare-eligible retirees age 65 and older. About one in three firms raised cost-sharing requirements for younger retirees, while about one in four did so for those 65 and older.

New retirees, those who stopped working on or after Jan. 1, 2006, paid the highest amount. From 2005 to 2006, firms reported raising contributions for new retirees under age 65 an average of 15.1 percent in their largest plans. New retirees 65 and older paid an average of 9.6 percent more for coverage in those plans, according to the survey.

Overall, the average firm paid $68.7 million to provide retiree coverage, a 6.8 percent increase from 2005 to 2006. That's consistent with cost increases for workers, but still outpaces inflation, which increased only 4 percent during that time.

On a positive note, more than four out of five large employers provided retiree drug coverage paid in part with a federal subsidy. The federal money, designed to provide an alternative to the Medicare prescription drug benefit, helped employers save an average of $546 per retiree. Next year, 78 percent of companies plan to offer coverage to Medicare-eligible retirees, while 8 percent will not.

Critics feared the Medicare drug benefit would cause large numbers of private employers to drop retiree drug coverage. But Medicare spokesman Jeff Nelligan said the tax-free subsidies are an effective incentive for companies to continue offering retiree drug coverage. He added that the Medicare drug benefit helped retiree health costs increase only $1.3 billion in 2006, to $20.9 billion.

"The study shows that the slower rate of increase in retiree health costs in 2007 is partly attributable to the effects of Part D," Nelligan said.

The rising tide of companies dropping retiree health benefits also continued in 2006.

Eleven percent of those surveyed eliminated benefits for some future early retirees, while 9 percent dropped coverage for future Medicare-eligible retirees. One in 10 firms reported being very or somewhat likely to cut coverage next year for some future retirees.

The share of companies offering retiree health benefits has fallen from 66 percent in 1988 to 35 percent in 2006.

Current retirees typically avoid such coverage terminations. In fact, no companies in the survey dropped coverage for current younger retirees and only 1 percent cut coverage for current retirees ages 65 and older.

In all, 67 percent of large employers surveyed provide retiree coverage for new hires and 46 percent cover part-time workers. Ninety-six percent cover employees' spouses, and 84 percent cover other dependents.

Each business surveyed employs more than 1,000 people. Collectively, they provide benefits for 5.2 million retirees and dependents, of which 3.4 million are Medicare-eligible retirees.

The Kaiser Family Foundation is a private nonprofit organization dedicated to health care analysis. It is not associated with Kaiser Permanente or Kaiser Industries. Hewitt Associates is an international human resources services company.


(c) 2006, McClatchy-Tribune Information Services.

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