The launch next year of Medicare's new prescription drug program is not prompting companies that offer retiree drug benefits to drop those benefits -- at least in the short run. But many employers are unsure what they will do a few years from now when it comes to prescription drug benefits, according to a new study of the programs and plans of large U.S. corporations.
In the meantime, a steady exodus of employers from retiree health insurance overall continues, the study by the Kaiser Family Foundation and benefits consultants Hewitt Associates said.
Under the new Medicare law, employers that offer benefits as good as or better than the government's can obtain a subsidy if they continue their own programs. That's what about four in five big employers say they will do next year.
"Most employers are accepting government subsidies and taking a wait-and-see attitude on the drug law" said Drew E. Altman, president of the Kaiser Family Foundation, which, along with Hewitt, surveyed some 300 large employers.
"The widespread dropping of drug benefits that some had feared has been averted so far as businesses figure out what their longer-term response will be," Altman said in a statement released with the study yesterday.
"This is mostly good news for retirees," said Tricia Neuman, one of the study's authors. But, she added, "employers will no doubt revisit this issue in future years."
Even so, some 9 percent of companies now offering prescription drug benefits to Medicare-eligible retirees said they would stop doing so next year, and another 10 percent said they would provide limited drug coverage to supplement Medicare's.
In addition, the interaction of Medicare and company medical plan rules can create a potential pitfall for retirees, the study said. Retirees themselves have the option of signing up for the new Medicare Part D, but under the rules of about two-thirds of companies, doing so will cause them to lose some or all of the employer-sponsored medical insurance.
At about 29 percent of companies, retirees who sign up for Medicare drug coverage will lose not only their employer's drug coverage but all of their employer-provided medical insurance. At another 31 percent, signing up for Medicare Part D will cause retirees to lose the company's drug coverage.
"For retirees with employer coverage, informed decision-making is especially important," the study said. "Many are concerned that some retirees -- faced with a fairly significant change in their Medicare options -- may sign up for a Medicare prescription drug plan without realizing the potential consequences in terms of forfeiting their employer-sponsored benefits."
Looking past next year, many companies expressed doubt that they would continue to offer drug benefits and accept the subsidy, which generally amounts to about 28 percent of the employer's costs. For 2007, half said they were very likely to continue to offer coverage and take the subsidy, and another 32 percent they were somewhat likely to do so. But for 2010, only 20 percent said they were very likely to continue providing prescription drug benefits and taking the subsidy; another 30 percent were somewhat likely to do that. Some 22 percent were very or somewhat likely not to, and the rest did not know.
However, it is hard to tell what the consequences will be for retirees, said Frank McArdle of Hewitt, another of the authors. If an employer simply shifts to supplementing Medicare drug benefits instead of providing them itself, retirees might not see a difference, he said.
A goal of the study was to set a base line by which retiree health insurance can be measured. Some 3.6 million retirees and dependents ages 55 to 64 -- too young for Medicare -- now receive health coverage through a former employer or union, and more than 12 million retirees on Medicare use employer-sponsored coverage to fill Medicare's gaps or help with out-of-pocket costs.
However, over the past 25 years there has been a major decline in the willingness of employers to provide such insurance. Between 1988 and 2005, the percentage of companies with 200 or more employees providing health coverage to retirees declined from 66 percent to 33 percent. And the study found that in just the past year 12 percent of the companies surveyed had eliminated retiree health care coverage for future retirees, most commonly only for new hires.