Academic journal article Health Care Financing Review

Retiree Health Insurance: Recent Trends and Tomorrow's Prospects

Academic journal article Health Care Financing Review

Retiree Health Insurance: Recent Trends and Tomorrow's Prospects

Article excerpt

INTRODUCTION

Former employers are a major source of health insurance for older adults, particularly for those who retire before becoming eligible for Medicare. To early retirees, defined as those who retire before age 65, health insurance coverage is a critical consideration in the decision of when to retire (Rogowski and Karoly, 2000). To Medicare-eligible retirees, defined as those age 65 or over, post-retirement health insurance generally provides financial protection for medical expenses not covered by the Medicare program, for example, prescription drugs, as well as cost-sharing liabilities, such as deductibles and coinsurance.

Post-retirement health benefits are also significant to employers and the Medicare program. Although retiree health coverage is a major financial investment for employers, it is quite influential in recruiting and retaining employees, particularly those in mid- and late-career (Anderson et al., 2001). For the Medicare program, post-retirement health coverage from former employers substantially affects Medicare spending. Medicare outlays for beneficiaries with post-retirement benefits are 23 percent greater than spending on beneficiaries in equivalent health and socioeconomic status who lack supplemental coverage (Khandker and McCormack, 1999). Therefore, policymakers must understand how the public and private insurance systems can interact, and how changes in the Medicare program, such as the potential addition of a Medicare prescription drug benefit, might affect employers and ultimately beneficiaries. With a better understanding of the retiree insurance market, policymakers can make more informed decisions about ways to improve the Medicare program.

Failure to understand trends in post-retirement health benefits can lead to costly policy miscalculations. There is no clearer example than the Medicare Catastrophic Act, passed overwhelmingly by bipartisan majorities in 1988. In passing this legislation, Congress misunderstood that more than one-third of the elderly already received catastrophic and prescription drug coverage through their employer at a lower cost than provided by the legislation. Those elderly with post-retirement benefits included many of the most affluent, politically active, and articulate elderly. One year later an embarrassed Congress repealed the act (Rice, Desmond, and Gabel, 1990).

This article presents recent trends in employment-based supplemental health insurance coverage for older adults and prospects for the future availability of such coverage given the current policy environment. We undertook employer- and beneficiary-level analyses of cost and coverage issues. Specifically, we addressed the following research questions:

* To what extent are employers offering retiree health benefits and how has this practice changed over time?

* Which subgroups of older adults are more likely to have retiree health benefits and other types of Medicare-related insurance?

* In what types of health plans are retirees enrolled?

* How prevalent is employer-based prescription drug coverage for retirees?

* What are employers currently doing to save costs, and what changes do they have planned for the future?

BACKGROUND

Medicare supplemental health insurance became available almost immediately after the inception of the Medicare program in 1965. Supplemental coverage is highly desirable because Medicare pays for only about 55 percent of all personal health care expenditures, leaving the beneficiary to pay the balance (Liu et al., 2000). Sole reliance on Medicare can impose high costs on the elderly because there is no limit on out-of-pocket spending. Supplemental policies typically take the following forms: employer-sponsored retiree (group) coverage; individually purchased private supplemental insurance policies; or publicly sponsored coverage, most commonly Medicaid. Insurance under any of these categories may be provided under managed care arrangements, most notably through the M+C program. …

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