The New York Times
February 3, 2004
Companies Limit Health Coverage of Many Retirees
By Milt Freudenheim
Employers have unleashed a new wave of cutbacks in company-paid health benefits for retirees, with a growing number of companies saying that retirees can retain coverage only if they are willing to bear the full cost themselves.
The costs can be a shock. According to surveys by benefits consultants, companies that offer health benefits to retirees typically have subsidized about 60 percent of the premium. Losing that support all at once can mean hundreds of dollars a month in unexpected costs.
Moreover, in dropping their subsidies, many companies push retirees into insurance pools that are separate from those of younger, healthier workers, executives said. That lowers the company’s costs for insuring its current workers, while raising the premiums charged to retirees even further.
Last month, a study for the Kaiser Family Foundation by Hewitt Associates found that among employers that have maintained retiree coverage, about 15 percent have required at least some retirees to assume the full cost of their insurance in the last two years. Another 31 percent said they would probably adopt these so-called access-only health plans within the next three years.
“Twenty years from now, no company will offer retiree health care,” Uwe Reinhardt, a health economist at Princeton University, said.
Comment: Current policies are designed to defeat the purpose of risk pooling. Employers keep younger, relatively healthy, currently-employed individuals in the risk pools to which they contribute funds. But employers are placing older, higher-cost, retired individuals into separate risk pools. Premiums have to be much higher to adequately fund these risk pools. And now, more and more, employers are requiring retirees to pay the full premium if they wish to continue coverage.
If the employers are not contributing to the premium, why would a retiree participate? There are two reasons. Coverage is assured, which is not the case in the individual insurance market. And group plans tend to offer better benefits than the individual plans. But what good is this coverage if it is unaffordable because of the very high premiums that must be charged for a risk pool that concentrates high-cost patients?
We can anticipate further innovations in risk segmentation, cost shifting, individual segregated health accounts, adverse selection, and other measures
that are designed to provide coverage for low-cost individuals with few health care needs, while segregating or excluding precisely those high-cost individuals for whom risk-pooling is designed.
We won’t get it right until we accept the concept that we need one universal risk pool. Then we can decide on the most equitable method of funding that pool. Until we are ready to agree on this, we will watch health care becoming less and less affordable for those who need it the most.