THE IMPACT OF THE MEDICARE BILL

Since Medicare doesn’t cover all the health care most retirees need and use, employer-sponsored health plans fill in the gaps. More than 1/3 of retirees over 65 (11 million) have employer-sponsored drug coverage . Currently employer plans are the main source of drug coverage , they also provide affordable coverage for 3 million people who retire before age 65. Coverage for this group is almost always unaffordable and often unavailable if they have a history of health problems. This coverage is crucial at a time when many begin to face medical problems and need health care the most.

Employer-sponsored health insurance premiums increased an average of 11.2% in 2004 and this is the 4^th consecutive year of double-digit growth. Premiums rose at about 5 times the rate of inflation (2.3%) and workers’ earning (2.2%) In 2004 premiums reached an average of $9,950 annually for family coverage ($829 per month ) and $3,695 ($308 per month) for single coverage. PPOs rose to $10,217 annually ($851 per month) and since 2001 premiums for family coverage have risen 59%. These increases have forced employers to reduce or drop retiree coverage and this is expected to continue leaving this supplemental coverage less available to future retirees. Large employers are dropping retiree coverage in 1991 80% of large employers offered retiree coverage in 1999 only 66% offered coverage and since then it has dropped to 56%. Companies are also looking for ways to control costs of retiree health coverage, using strategies such as adopting new eligibility rules, minium years of service rules, and other conditions. Many are raising premiums and cost-sharing requirements, especially for prescription drugs.

The new Medicare Prescription Drug Improvement and Modernization Act provides employers with $88 billion in subsidies to give them incentives to keep health benefits in place for retired employees. How employers react to these incentives once they are in place is a key concern for seniors, policy makers, retirees, unions and many others. They can get tax-free, direct subsidies up to 28% of total drug costs, for expenditures between $250 and $5,000 per retiree, as long as the employer’s plan has drug coverage that is at least actuarially equivalent to the standard Medicare drug benefit. Most employer plans are more comprehensive than the Medicare benefit and this means that employers can scale back their drug coverage to the Medicare level and still get the subsidy.

Employers can opt : to take the 28% subsidy and keep benefits at their current level, or change the benefit to be more like the Medicare benefit, they can turn down the subsidy and instead supplement the Medicare Part D drug benefit somehow but in this case, employers’ contributions do not count toward retirees’ out-of-pocket spending requirement, or they can eliminate their retiree coverage altogether. It is still unclear whether the Medicare law’s subsidy will encourage employers to keep retiree drug coverage or whether they will view the drug benefit as a way to cut back expensive health coverage. Although President Bush promised that "corporations have not intention to ... ‘dump retirees’ ‘’ from existing drug coverage but his own health officials estimate that millions will be cut off from their existing drug coverage because of the new Medicare law. And estimates that employers will reduce or eliminate prescription drug benefits for 3.8 million retirees when the law goes into effect in 2006. This represents 1/3 of all retirees with employer-sponsored drug coverage. The ‘little-notices’ provision in the bill that allows companies to severely reduce-or terminate their retirees’ drug coverage without losing out on the new subsidy. In effect he would reward companies who cut off their retirees with a new tax break. The companies that lobbied for the provision donated almost $140,000 in hard money and $2.5 million in soft money to Bush and his party since 2000.

A Kaiser survey disclosed that in the past year, 79% of firms increased their retirees’ contributions for premium, and 85% expect to doso in the coming year, 8% employers said they had eliminated subsidized health benefits for future retirees(current workers) and about 1% said they are likely to terminate subsidized coverage for the current retirees but 22% said they would likely terminate coverage for future retirees.

How Not to Retire

A study by the human resources consulting firm Hewitt Associate and the Kaiser Family
Foundation released in January showed how retiree health care benefits are steadily
being reduced.  Some 71 percent of 408 large private-sector firms surveyed said 
they had required their retirees to pay higher premiums during the past year, while
57 percent had increased drug Co-payments/coinsurances, and 34 percent had increased
deductibles.

Eve  Alexandre worked most of his life for Kaiser Aluminum and retired in 1986.  
Two years ago, the company, now based in Texas, filed for bankruptcy and told salaried
retirees like Alexandre that they would need to pay $130 per person per month to
retain their benefits,  On Jan 1, it doubled the premium to $522 per couple per 
month.  Two weeks later, the company asked a bankruptcy court to let it terminate
medical benefits for all its retirees, salaried and non-salaried alike, and it did
so effective May 31.

At the SF Chronicle, who printed this article, employees who retire early are losing
subsidies for group health insurance beginning Nov.1.

There has been significant erosion over time, said Frank McArdle, head of 
Hewitt's Washington, DC, research practice.


These are benefits, typically health benefits, that were earned and paid for 
one way or another by the retiree when he or she was an active working person.
They are willy-nilly being withdrawn, year after year.  It comes in all forms:
increased premiums, increased deductibles, in some cases complete withdrawal.

Businesses say they haven't morphed from Santa to Scrooge; they simply cannot 
afford the spiraling costs of health care for their current employees, let alone
retirees. The money is not there, employers are having a difficult time just grappling
with premiums for employees.  The idea of taking care of people who aren't even
with you anymore is just way beyond the employers financial ability.  Look
at airlines, old time companies like United, Delta, American, and Continental are
competing against Southwest and JetBlue, which don't offer retiree health benefits,
have much younger workforces and pay less, It's a huge competitive disadvantage.
Legacy companies with heavy retiree commitments are hindered in the marketplace.
The Kaiser/Hewitt survey bore that out; ten percent of surveyed firms had eliminated
subsidized health benefits for future retirees in the past year, while 20 percent
said they were likely to end health coverage for future retirees in the next three
years.

Hewitt projects that workers should assume health care costs in retirement will 
consume about 20 percent of their pre-retirement income.  It recommends people work
until age 67 (the age when younger workers will qualify for full Social Security
benefits) and increase their 401 K plan savings to boost their retirement income.

After 37 years as program manager at IBM in Sacramento, James Viele had hoped to
retire early.  But when he looked at what it would cost him, he opted to stay on
the job until he becomes eligible for Medicare when he turns 65 (of course now it
will be a few months more) in September.

As he understands it, because IBM has capped the amount it will contribute to retiree
benefits, insurance cost increases get passed along to the retirees.  He now pays
$127 a month for health insurance for himself and his wife, if he retires before
becoming eligible for Medicare, the premium will jump to $900 a month.  He could
have chosen less-expensive options with higher deductibles, less benefits, and higher
co-pays, but he sees them as planned roulette.

Congress and retirees will be unable to do much as they see their benefits whittled
away.  If congress were to mandate that companies could not change their benefits,
you'd see an even more-rapid exodus from providing retiree health coverage.  To
mandate that a company could never change its benefits would boomerang and generate
very significant opposition from the business community.

People did not take into account the rapid costs of health care, but it should have
been understood that there is a limit to how much a company can shell-out.  Eliminating
health care coverage for employees from the employer's responsibility would be
a big step in improving our economy.  Employer-based health care and market-based
health care are wrong.  Plain and simple they are wrong and can only cost us headaches.
They will never provide us with quality and affordable health care.  They have failed
us in the past, they are failing us now, and they will fail us in the future.  We
have a proven system in a government insurance program in Medicare, all we
have to do is extend it to everybody so we are all under a one-risk pool, working
together for the best health care and affordability.