Private Employers Cutting Back Health Benefits to Retirees

July 28, 2003
Employer-sponsored health insurance is often described as the most reliable private source of Medicare supplementation, particularly for prescription drug benefits. However, a new study finds that employers are cutting back on their offerings of health benefits to both current employees and retirees.

The findings show that employer coverage is becoming an increasingly less dependable source of coverage for new retirees, and the problem is likely to get worse. The study found that the proportion of Medicare beneficiaries ages 65–69 with employer coverage declined from 46 percent in 1996 to 39 percent in 2000. The proportion with drug coverage from an employer declined from 40 percent in 1996 to 35 percent in 2000.

Losses among males, the group most affected, would have been even greater had it not been for a slight increase in benefits from spouses’ policies.

The findings, reported in the current edition of Health Affairs lend more urgency to the current Congressional debate over a drug benefit provision for Medicare.

According to annual Mercer/Foster Higgins surveys, the number of large employers (500 employees or more) offering coverage to Medicare-eligible retirees declined from 57 percent in 1987 to 23 percent in 2001. Surveys conducted by the Henry J. Kaiser Family Foundation/Health Research and Educational Trust (KFF/HRET) report similar findings for smaller firms, although fewer small firms have ever offered coverage to either employees or retirees.

Also, most firms that maintained retiree coverage during the 1990s have since reduced benefits or increased employees’ share of premiums, or both. Health insurance take-up rates among eligible employees and retirees have fallen as a result.