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U.S. Employers Cutting Health Care Coverage for Workers in Retirement

By Vicki Kemper

More than one-third of the United States’ large employers that offer health care to retired workers have recently stopped such benefits for future retirees or expect to do so within the next three years, a comprehensive survey released Thursday has found.

The report highlights yet another unwelcome consequence of spiraling health-care costs, which are rising at double-digit rates even though overall inflation is well under control. It foreshadows troubling ripple effects and even tougher policy decisions ahead as elected officials confront growing numbers of Americans without health insurance.

And with fewer employers subsidizing health coverage for their retirees, the cost pressure on the already strapped Medicare program will only increase.

There was a ray of good news in the survey, conducted by the Henry J. Kaiser Family Foundation and Hewitt Associates, a human-resources consulting firm. All but 5 percent of the companies surveyed said they would continue to subsidize health insurance for current retirees and their spouses.

Yet 85 percent of them said they would continue to pass on more of the coverage costs to retirees. Over the past year alone, retiree contributions increased an average 20 percent.

The study of 435 companies that employ more than 1,000 and currently offer health benefits for retired workers was conducted online between July 2 and Sept. 9.

“Employer-subsidized health-care coverage for retirees is not collapsing, but it is eroding,” says Drew Altman, president of the Menlo Park, Calif.-based Kaiser Family Foundation, an independent health-care philanthropy.

“It’s a balancing act,” said Randy Johnson, head of human resources strategic initiatives for Motorola Inc. “If we’re going to be able to provide jobs to future retirees” in an environment of rising costs and global competition, “we’re going to have to manage costs now.”

For current retirees, that is likely to mean reduced benefits and higher insurance premiums, deductibles and co-payments. But for older workers -- the very age group that has the hardest time buying individual policies -- it may mean no employer-provided coverage at all.

Twenty-two percent of employers surveyed -- more than one in five -- said they were very likely or somewhat likely to terminate health benefits for future retirees within the next three years. An additional 13 percent said they had stopped offering health benefits to future retirees over the past two years.

“This is a trend we have been watching for some time,” Kate Sullivan, director of health policy for the U.S. Chamber of Commerce, said in an interview. “It means we have to look beyond employer groups to help people pay for health coverage.”