Large Employers Face Hard Choices on Retiree Health Benefits
Coppock, Steve, McArdle, Frank B., Aging Today
Providing health benefits for retired workers is an increasingly difficult burden for employers. The cost of providing coverage-often comprehensive health benefits for early retirees and supplemental policies for those on Medicare-jumped sharply in 2002, and the situation is certain to get worse in the years ahead.
The near-term challenge for employers is balancing the financial needs of their organizations while maintaining vital benefit programs for retirees and spouses. The alternative to acting now is being forced to undertake more drastic changes down the road or abandon retiree health benefits altogether. Employers need no crystal ball to see where these trends are leading. They need only look at the effect these health costs already are having on their bottom lines. This is a problem not only for the largest corporations, but also for every employer paying the lion's share of premiums for workers and families, even in retirement.
CRISIS IN FOCUS
Last year, Hewitt Associates and the Henry J. Kaiser Family Foundation surveyed 435 large U.S. companies-including one-third of the Fortune 100 companies and more than one-quarter of the Fortune 500-about their retiree health plans. The findings put this retiree healthcare crisis into focus and offer a preview of steps that many employers are taking to keep these costs under control. "The Current State of Retiree Health Benefits-Findings From the Kaiser-Hewitt 2002 Retiree Health Survey" can be viewed at www.hewitt.com or www.kff.org.
The surveyed companies employ at least 1,000 workers; most have more than 5,000 employees, and one in five employs more than 20,000. These 435 companies, by themselves, play a large role in both the American economy and employer-sponsored healthcare. Their health plans cover more than 23 million Americans-18.5 million workers and family members and more than 5 million retirees and spouses.
Regarding expenditures for employers and retirees, these large companies told Hewitt and the Kaiser Family Foundation that the total cost (employer and retiree share) of providing retiree coverage jumped 16% in 2002. Retiree health benefits cost large companies and their retirees $ 14.5 billion, up $2 billion over the previous year. These firms and their retirees paid an aggregate $28 million each, on average, for retiree health benefits in 2002. The 97 jumbo companies-those with more than 20,000 employees-and their retirees paid $95 million on average. These costs have a huge impact on corporate profitability.
The chief executives of these large companies are painfully aware of how expensive this coverage has become. In the survey, 88% of respondents said their CEOs were concerned about retiree health costs; 52% said their CEOs were very concerned.
Not long ago, big companies could drive better bargains in the healthcare marketplace. But size was little or no shield against the sharply rising premiums that have roiled the market in 2002. Retiree health costs rose 15% for the firms with 10,000 or more employees and 17% for those with fewer than 10,000.
COSTS RISING FAST
Another Hewitt survey of large employers in 2002 showed that the overall costs of retiree health benefits rose faster than health coverage for active workers, 16% versus 13.7%. With respect to average premiums, the Hewitt-Kaiser survey came up with the following figures:
* The average total premium (employer and retiree share) for those under age 65 in 2002 was $365 a month ($4,380 a year). If a spouse was covered as well, the average total premium cost was $729 a month ($8,748 a year).
* For those 65 and older, the average total premium was $194 a month ($2,328 a year) for an individual retiree and $406 a month ($4,872 a year) for a couple.
* Although new retirees' contributions increased about 20%, employers still bore most of the cost of this coverage. The average retiree contribution for someone under age 65 was $ 153 a month ($1,836 a year) and $328 a month ($3,936 a year) if the spouse was also covered. …