Retirees paying more for healthcare benefits,
survey finds

Employers increased premiums and deductions in 2004

As healthcare costs continue to rise, retirees are being asked to share more of the load. In the past year, employers have increased their retirees’ contributions for premiums, increased copayments or coinsurance for prescription drugs, and raised deductibles for healthcare services, according to a recent survey of employers by the Kaiser Family Foundation and Hewitt Associates.

The survey found that businesses providing retiree health benefits experienced cost increases averaging 12.7 percent in 2004. The survey also found that a typical worker under age 65 who retired in 2004 would pay $2,244 annually in premiums, 27 percent more than someone who retired in 2003. A typical Medicare-eligible worker who retired in 2004 would pay $1,212 annually in premiums, 24 percent more than in 2003.

At least 8 percent of employers surveyed said that, in 2004, they had eliminated subsidized health benefits for future retirees. Only 1 percent said they are likely to terminate subsidized coverage for current retirees in 2005. However, 11 percent said they are likely to terminate coverage for future retirees.

“The prospects for retiree health coverage are slowly disappearing for America’s workers, and retirees who have it will be paying more,” says Kaiser president Drew Altman.

More than half of the employers surveyed (54 percent) placed caps on their contributions to at least one retiree health plan offered in 2004. Caps force retirees to absorb a greater share of costs once the cap is reached, the report notes. Fifty-three percent of businesses that have a cap on their largest health plan for retirees who are too young to receive Medicare have already hit the cap, and 28 percent anticipate hitting the cap in the next one to three years. Fifty-six percent of companies with a cap on their largest retiree health plan for Medicare-eligible retirees, have already hit the cap, and another 27 percent anticipate hitting it in the next one to three years.

Response to Medicare law

The study also asked employers about the new Medicare law, which will go into effect in 2006. The law gives employers several options for providing drug coverage to their retirees. It also provides tax-free subsidies to businesses to continue to provide drug coverage to their Medicare-eligible retirees.

Many of the companies surveyed (69 percent) said their current prescription drug benefit is already more generous than the standard Medicare benefit. More than half of the companies (58 percent) said they are likely to continue to offer prescription drug benefits and accept the tax-free subsidy created by the new law. Of these employers, 85 percent said they plan to retain current benefit levels; 17 percent said they are likely to offer coverage as a supplement to the Medicare prescription drug plan; and

8 percent said they would discontinue drug coverage. The remaining companies said they did not know which strategy they are likely to choose or that they are planning a different strategy.

The Kaiser/Hewitt study analyzed responses from 333 private-sector firms with 1,000 or more employees and which offer retiree health benefits.

For more information, visit the Kaiser Family Foundation Web site at www.kff.org/medicare/med121404pkg.cfm.

Bush takes aim at Social Security

Following his election victory, President Bush wasted little time in detailing his legislative priorities for a second term—including efforts to privatize Social Security.

“I earned capital in the campaign—political capital, and now I intend to spend it,” Bush told reporters in a news conference held just hours after the election. Among the items topping the president’s agenda was Social Security “reform.”

Last year, the Bush administration’s Economic Report of the President outlined two principal goals for the program: cutting Social Security benefits and creating private accounts under the program. The proposals prompted a firestorm of protest from those who saw diverting Social Security into private accounts as an attack on this fundamental safety net for millions of Americans because it would shift a part of the guaranteed Social Security benefit to a risky 401(k) type of account.

And many warn that the overall Bush reform plan is based on fuzzy math and fuzzy logic.

“Here’s the problem,” a Newsday editorial explained: “Bush wants to allow workers to siphon off a portion of their payroll taxes into private accounts and invest it in the stock market for their eventual retirement. But Social Security is a pay-as-you-go program. The payroll taxes of current workers pay the benefits of current retirees. So every dime that goes into private accounts is a dime that won’t be available to pay benefits for retirees today and in the near future.”

Filling that hole, several groups warn, could cost $1 trillion or more—about a quarter of the U.S. gross domestic product—making that option almost impossible.

In 2002, delegates to the AFT convention overwhelmingly passed a resolution opposing plans to replace Social Security’s guaranteed benefits with individual retiree accounts and pledging union support for a Social Security system that “maintains economic security for current and future retirees, reducing the economic burden on younger family members to care for their older relatives.” The AFT remains committed to fighting the privatization of Social Security.