Employers Opting to Maintain Retiree Drug Coverage for 2006

Most businesses (79%) that now provide retiree health benefits will accept government subsidies for continuing to provide retiree drug coverage at least as good as Medicare’s coverage when the new drug benefit starts in 2006, according to a new survey by the Kaiser Family Foundation and Hewitt Associates. According to the report--Prospects for Retiree Health Benefits as Medicare Drug Coverage Begins: Findings from the Kaiser/Hewitt 2005 Survey on Retiree Health Benefits, another 10% say that they will provide some drug coverage to supplement the new Medicare benefit, and 9% say that they plan to stop offering drug coverage to Medicare-eligible retirees.

“For many reasons, taking the retiree drug subsidy is the strategy of choice for large companies in 2006, but they will continue to reassess their strategies moving forward as more experience develops with Medicare drug plans,” said Frank McArdle, manager of Hewitt’s Washington, D.C., research office. “Unfortunately, retiree health cost pressures remain intense.”

In addition to providing more detail about employer policies affecting prescription drug coverage, the study shows that surveyed firms report an average increase of 10 percent in total retiree health costs between 2004 and 2005, including both Medicare-eligible retirees and early retirees (under age 65) who do not qualify for Medicare benefits. About one in eight surveyed firms (12%) say that they had stopped offering subsidized retiree health benefits in 2005 for future retirees, mainly newly hired workers.

Source: News Release Kaiser Family Foundation (December 7, 2005)