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Employers Tightening Retiree Health Coverage, Survey Finds

By CQ Staff

June 28, 2006 -- Despite subsidies from the Medicare drug program, many employers are planning to curtail their health care coverage for current and future retirees, according to a survey released Wednesday by the management consulting firm Watson Wyatt Worldwide.

Only 5 percent of the 163 companies surveyed said they do not expect to place any additional restrictions on their medical benefits for future retirees over the next five years, and 7 percent do not expect to implement further restrictions for current retirees. Fourteen percent of employers plan to eliminate the benefit entirely for future retirees over age 65 and 6 percent plan to eliminate the benefit for current retirees over 65.

Nearly two-thirds of employers anticipate increasing financial contributions for future retirees and half of employers expect to change their plan design.

The Medicare drug benefit subsidizes employee and union plans with up to 28 percent of costs incurred greater than $250—up to $5,000—for retirees who are also Medicare beneficiaries. According to the survey, out of the 77 percent of employers who took the Medicare drug subsidy in 2006, 64 percent plan to take the federal subsidy in the future.

"Employers are biding time with the federal subsidy for now as they sort out their long-term retiree medical strategies," Cara Jareb, director of retiree medical consulting at Watson Wyatt, said in a news release. "But many of them will likely find that relying on the subsidy will not be the most effective solution to control costs going forward. At that point, employers will need to explore other ways to fund and deliver these benefits."

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