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Cost Pressures Squeeze Retiree Heath Benefits

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NU Online News Service, Dec. 5, 10:27 a.m. – Many large employers plan to cut back on retiree health benefits in the next few years, and some are thinking about shifting to a “defined contribution” approach to funding the benefits, according to results of a survey conducted by The Henry J. Kaiser Family Foundation, Menlo Park, Calif., and Hewitt Associates L.L.C., Lincolnshire, Ill.

When researchers surveyed 435 employers with more than 1,000 employees that offer retiree health benefits, they found that health coverage for new retirees over age 64 now costs an average of $194 per month, and the retirees themselves pay about $79 per month, or 20% more than they paid in 2001.

Ninety-five percent of the employers surveyed planned to continue offering health insurance to “current retirees,” or retirees who are already retired, over the next three years.

Eighteen percent of the employers had no plans to increase retiree health premiums, but 22% said they were very or somewhat likely to eliminate all subsidized health benefits for future retirees.

One-quarter said they were very or somewhat likely to shift to defined contribution plans, or plans that combine high-deductible, catastrophic health coverage with medical savings accounts that retirees can use to pay for routine medical expenses. Today, the majority of retiree plans limit out-of-pocket costs for covered services, and the most common limit is $1,500 for single retirees, the researchers report.