Employer-sponsored health benefits for retirees dying out

Number of companies that offer medical coverage for former workers dwindling

Oct 24, 2012 @ 12:01 am

By Darla Mercado

Employees are managing expectations in retirement as employers yank back health benefits for retirees.

Data from the Employee Benefits Research Institute showed that in 1997, 10.2% of private-sector employers provided health insurance to Medicare-eligible retirees and that 11.3% provided such coverage to early retirees. As of last year, those numbers fell to 6.1% and 6.7% respectively.

Health insurance in retirement also has been on the decline for local-government employers with at least 10,000 workers: 87.6% of these employers gave early retirees insurance benefits in 1997, while 81% provided coverage to Medicare-eligible retirees. Those numbers slipped to 77.6% and 67.3%, respectively.

Accordingly, workers are feeling a little less confident about the prospect of getting health benefits once they've stopped working.

EBRI's analysis of 35.7 million wage and salary workers 45 to 64 in 1997 and 52.7 million in 2010 showed that while 45% of these workers expected coverage in 1997, the percentage declined to 32% in 2010.

“The data show that workers are still more likely to expect retiree health benefits than retirees are actually likely to have those benefits, but the expectations gap is closing,” said Paul Fronstin, head of health benefits research at EBRI.

A major motivator behind employers' decision to stop providing health care benefits is tied to accounting measures dating back to 1990 for private-sector employers, requiring them to account for the cost of post-retirement benefits aside from pensions. Many employers realized for the first time how much they were shelling out to provide coverage to retirees.

Among those who continue to provide benefits, most have decided to raise premiums that retirees must pay for their coverage, restrict eligibility for new retirees or limit benefits, according to EBRI.

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