Look out, retired people and future retirees: Your non-Medicare health benefits are disappearing!
Well, its not like every retiree gets private health bennies; if you are not covered by a union contract, if you dont work in the public sector, and/or if your employer is not a large firm, these benefits probably werent available to you in the first place. But even if you do belong to one of these lucky groups, and even if your employer historically has provided benefitsespecially to early retireesthats no guarantee that you will get them.
According to the nonpartisan Employee Benefit Research Institute, or EBRI, in 1997, 31% of those employed in the private sector worked for firms that offered retiree benefits; by 2003, that figure had shrunk to 22%, and not all employees qualified. In 1997, 22% of private-sector employers offered these benefits; by 2005, that number was 13%. In 1997, 20% of private employers offered health benefits to retirees who were Medicare-eligible; by 2005, only 13% did.
The 2007 annual Kaiser Family Foundation survey of employee benefits found that in 1988, 66% of large firms (those with more than 200 employees) offered retiree benefits; by 2007, the figure was down to 33%.
First, the cost problems that plague all employers that offer coverage to workers affect retiree coverage as welleven more so, in fact, because retirees use more healthcare services, take more prescription drugs and are more likely to suffer from chronic illness or disability. Furthermore, many are on fixed incomes and cannot easily absorb the constant barrage of premium increases.
Second, Medicare covers a significant portion of retiree healthcare costs, but certainly not all of them, and it doesnt cover healthcare for early retireesthose in the 55-64 age group. People in this group who lose retiree coverage are left to the individual market, which they will findon a good dayto be inordinately expensive and rife with pre-existing condition exclusions, caps and other limitations. The EBRI reports that the number of people age 55 to 64 who are uninsured rose from 1.5 million (11.3%) in 1994 to 2.5 million (11.9%) in 2005.
Third, where you work mattersa lot. The Kaiser Family Foundation survey found that only 5% of firms with fewer than 200 workers even offer retiree health benefits. Furthermore, employers with large numbers of low-wage workers are less likely to offer them. If that isnt enough bad news, there are several threats looming. First, the design of the Medicare Modernization Act of 2003the one with the prescription drug benefitwas influenced by a fear that employers would just drop retiree coverage wholesale and let Medicare handle it, given that prescription drug coverage is far and away the most popular retiree health benefit. So a provision was inserted that provides a tax subsidy to employers who continue to offer benefits, even if they cut or cap them. So far, most employers have taken the money and kept offering the benefits in some form, but if that subsidy goes away, so will the health coverage of millions of retirees.
New requirements in 2004 that public employers disclose their liabilities and funding for health and other retiree benefits found that unfunded liabilities in 40 states totaled $400 billion in 2007.
And it isnt just the public sector. Large private employers have upped premiums, and many have capped the amount they are willing to contribute. Even if there is a union contract, the employer can escape full liability, as Big Auto has shown with the creation of voluntary employee beneficiary associations, to which the employer makes a hefty contribution and then essentially walks away, letting the union take responsibility for running it.
Employers right to curtail benefits, even for already retired workers, was reaffirmed on March 24 when the U.S. Supreme Court upheld an appeals court ruling that employers may reduce benefits when a retiree reaches the age of 65 and becomes eligible for Medicare.
Three unhappy consequences are likely from the increasing erosion of retiree health benefits. The first is having more uninsured older people who are no longer working and are thus unlikely to obtain coverage before they are eligible for Medicare; this is a dangerous situation, in that most people over 50 have at least some health problems and many have conditions that require vigilant care.
The second unfortunate consequence is that more employers and even many state, city and county governments are likely to stop offering retiree coverage, especially to those over 65 and their dependents, as the cost mounts. When those who continue to provide the coverage find competitors dropping it, what began as a trickle soon becomes a flood.
The third grim effect, as the dominoes tumble, is that Medicare, which is already predicted to go bankrupt in 2019, if not before, will be expected to carry more of the freight as private protections for those over 65 erode. With its costs already soaring because of continuing overall healthcare inflation and especially the drug benefit, Medicare faces the entry into its ranks of the first of more than 70 million baby boomers in three years. Adding the ranks of those who lose retiree benefits could spell disaster.
A 2008 EBRI survey of Americans age 19 to 39 found that although they realize they must prepare for their later years, more of them felt very knowledgeable about how to use an iPod (40%) than about saving for retirement (15%).
They had better learn.