Changes in Retiree Health Coverage

Changes in Retiree Health Coverage Implications for States, as Employers Reduce Private Sector Retiree Health Care Coverage Changes in Retiree Health Care Employer Trends in Offering Retiree Health Care Coverage. Individual Health Care Coverage for Early Retirees. Retirement Planning: Must Include Health Care Costs. Federal Initiatives Supported by the Administration. Additional Legislative Proposals to Increase Retiree Health Coverage. Implications for States and State Policies.

Employer Trends in Offering Retiree Health Care Coverage Multiple Factors Result in Decline in Offers of Coverage: Accounting Standards - Adoption of FAS 106 in 1992 Laws restricting employers ability to fund health plans Increased health care costs Percent of Private-Sector Establishments Offering Health Insurance to Retirees: 1997-2003. 1997: Only 22% of all private-sector establishments offered health insurance to early retirees (generally defined as persons who have retired between the ages of 55 and 64 and who are not yet eligible for Medicare coverage), and 20% offered coverage to Medicare-eligible retirees. Since 1997, the percentage has eroded so that as of 2003 only 13% of all private sector establishments offered any type of retiree health coverage. Salisbury, Dallas, Health Security in Retirement, EBRI, February, 2006; www.meps.ahcpr.gov/data.pub/ic_tables.htm Employer Trends: Most Large Firms Do Not Offer Coverage As of 2003, 41% of establishments with 1,000 or more workers that offer health insurance offer coverage to retirees under the age of 65. For those 65 and older, the share falls to 40.3% These establishments employ 45.3% of private sector workers. www.meps.ahcpr.gov/data.pub/ic_tables.htm

Employer Trends: Private Sector Coverage is Eroding - As of 2002, only 28.7% of early retirees had health benefits in their own name, down from 39.2% in 1997. Of those persons, only 17-18% were receiving benefits from previous private sector employment rather than government employment. Medicare-eligible retirees with health benefits in their own name went from 28.2% in 1997 to 25.5% in 2002. EBRI estimates based on data from the Survey of Income and Program participation, 1996 and 2001 panels. By 2004, with 12-14 % of the population retired, 27-28% of all retirees had retiree health insurance. Of that population, only 11-12% were covered by private retiree health insurance. 2005 March CPS, which refers to CY2004. Retiree HC Coverage for Union Members is Also Shrinking Union members: 49.9% had coverage in 2002, down from 57.1% in 1997. Nonunion members: 21.8% had coverage in 2002, down from 32.1% in 1997. EBRI estimates based on data from the Survey of Income and Program participation, 1996 and 2001 panels.

Employer Trends: Health Coverage Rises with Income Of individuals with annual income of $50,000 or more in 2002, 49.3% had retiree health benefits. The percentage decreases with decreasing income, so of those with incomes of $20,000 - $29,000 (still at the upper levels of retiree income), only 18% had retiree health benefits. Today, these percentages have decreased across the income levels. EBRI estimates based on data from the Survey of Income and Program participation, 1996 and 2001 panels. 15% 10% 5% Employer Trends: Percentage of Surveyed Large Private-Sector Employers Making Changes to Retiree Health Benefits in 2004 0% Provided Access-Only to Health Benefits with Retiree Paying 100% of Cost Added or Improved Coverage of Benefits for Retirees Offered Medicare Advantage/Medi care + Choice as Option Terminated All subsidized Health Benefits for Future Retirees Imposed New Cap on Firm s Contributions for Group of Retirees for Which There Previously Was No Cap Shifted to Defined Contribution Approach Offered a Catastrophic Plan Plus Health Savings Account Note: Based on responses from private-sector firms with 1,000 or more employees offering retiree health benefits. SOURCE: Kaiser/Hewitt 2004 Survey on Retiree Health Benefits. December 2004.

Employer Trends: Employees are often Unaware For all establishments that offer retiree health coverage, employers offering access only rose from 31 to 33% between 2000 and 2003. These employers require the retiree to pay the full cost of the premium. For Medicare-eligible retirees, the share of employers in this group offering access-only coverage dropped from 36 to 31%. Alice Zawacki, Using the MEPS-IC to Study Retiree Health Insurance, CES Discussion Papers. April 2006. Individual Health Care Coverage for Retirees Average premiums for those 55-64 are $4185 for single coverage; $7248 for family coverage. Costs vary widely depending on what state you live in, and your health status. Only 70 percent of those 55-64 were offered coverage. Only 56 percent were offered a standard premium. AHIP Center for Policy and Research, Individual health Insurance: A Comprehensive Survey of Affordability, Access, and Benefits, August, 2005.

Retirement Planning: Must Include Health Care Costs Employer offers retiree health care coverage Employer offers retiree medical account (RMA) Long-term care insurance Health savings accounts (HSAs) combined with a HDHP Retirement savings Buying into a retirement community with tiered living arrangements. Retirement Planning: Don t Forget the Medicare Years. As of 2002, Medicare-eligibles supplemented their coverage with: Employer coverage: 28.5% Medigap: 24.9% Medicaid: 12.6% Medicare managed care: 11.7% Medicare only: 7.6% Private managed care: 6.7% Employer & Medigap: 6.2% Other: 1.8% CRS Report RL32944, March 28, 2006. Figure 1, Non-institutionalized population, 2002; analysis of Medicare Current Beneficiary Survey, Cost and Use file, 2002.

Federal Initiatives Supported by the Administration Expand Medicare: The 2003 MMA prescription drug benefit, as an example of added coverage through an existing government program. Tax Incentives: Individuals to pay for insurance premiums from pre-tax dollars. Allow tax credits for certain eligible individuals, as provided under the recently passed HCTC addition to Trade Adjustment Assistance. Pre-funding mechanisms: Contribution limits raised for IRA and 401(k) accounts; catch-up contributions for workers aged 50 and over; speeded up vesting process for employer contributions to 401(k) accounts. Encourage purchase of long-term care insurance. Expand health savings accounts combined with high deductible health coverage. Tax-preferred Retirement Savings Accounts (RSAs) and Lifetime Savings Accounts (LSAs), to save tax free to pay for job training, college tuition, the down-payment on a first home, a car to drive to work, or for retirement. Medicaid Flexibility: Allowing states greater flexibility in designing Medicaid programs to meet their needs. Additional Legislative Proposals to Increase Retiree Health Coverage Medicare Buy-In: Provide early retirees with access to Medicare, generally requiring the retiree to pay for the full premium, with certain tax deductions or credits for premium payments. Modify COBRA: Expand eligibility to allow certain eligible persons to purchase and use COBRA coverage until they reach 65. Premiums based on group coverage. Federal Employees Health Benefits Program (FEHBP) Buy-In: Allow OPM to administer an FEHBP-like program, with some tie-ins to the current program, but with a separate pool of participants. Employer Mandates: Prohibit employers from changing or eliminating retiree coverage.