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-- Programs and Services -- Contact Information Another blow for retirees
By GREG TARPINIAN
WASHINGTON, D.C. - The new Medicare legislation passed by Congress Nov. 25 gives employers yet another reason to terminate retiree health coverage for the 11.6 million workers who now receive benefits. With health-care costs out of control, many employers have already canceled or severely restricted coverage for retirees, and the new legislation will push many more to do so.
Employer-sponsored retiree health benefits now provide prescription drug coverage for more than one-third of all Medicare beneficiaries. With the new legislation in place, more employers will cancel coverage for retirees. Unlike most employer-provided plans, the prescription drug coverage provided by the new legislation leaves huge holes in the protection retirees receive.
Under the new law, a Medicare beneficiary will cover the first $250 of drug costs, and then Medicare will cover about 75 percent of prescription drug costs up to $2,250 a year. After that point, Medicare pays nothing more until expenses reach $5,100, when it kicks in again with coverage for 95 percent of costs. In addition to deductibles and cost sharing for the Medicare coverage, retirees will pay premiums of about $420 a year.
Although the legislation includes more than $70 billion in tax incentives to discourage employers from terminating retiree prescription drug coverage, the Congressional Budget Office estimates that employers will terminate benefits for 3.8 million retirees when the legislation takes effect in two years. An independent analysis by Emory Univerity estimates that 33 percent of retirees with benefits will lose them.
The legislation does nothing to control exorbitant prices pharmaceutical companies charge for drugs, so the cost of employer provided benefits will continue to soar.
The percentage of employers offering retiree health benefits has declined dramatically over the past 15 years. Two-thirds of employers with 200 or more workers provided retiree health benefits 15 years ago, but today, only 38 percent provide these benefits, according to a large Kaiser Family Foundation survey.
The Kaiser survey found that 9 percent of employers have eliminated retiree health coverage for active employees within the past two years. Forty percent reported that they had increased their retirees' share of premiums, and 26 percent reported that they had increased the amount retirees pay for prescriptions.
Employers are likely to wait to cancel retiree benefits until the plan year after the legislation's 2006 effective date. This strategy is designed to prevent retirees from associating the legislation with reduced benefits and launching a repeal campaign the similar to the one that quickly overturned Medicare legislation passed in 1988.
In addition to the potentially devastating effect that the new Medicare legislation may have on retiree benefit plans, the law carries of a number of broader and even more damaging consequences:
The new law includes billions of dollars in incentives for private companies to cover Medicare recipients for prescription drugs and health care services. Insurance companies will receive $12 billion in subsidies to encourage them to compete with Medicare.
The new Medicare legislation will funnel billions into the pharmaceutical industry without addressing the pricing and over-utilization issues that have pushed up costs. Pharmaceuticals will reap windfall profits as prescription drug sales rise and prices are protected from imports and discounts.
While the new Medicare legislation will provide modest prescription drug benefits for Medicare beneficiaries, 44 million Americans continue to live without health insurance for even the most
basic medical care.
Excerpted with permission from an article written for the Labor Research Association, (www.laborresearch.org), a New York City-based nonprofit research and advocacy organization that provides research and educational services for trade unions, Greg Tarpinian, president and executive director.