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If you've been assuming that your employer will help you pay for health insurance after you retire, you may be in for an unpleasant surprise. And you probably ought to recalculate your retirement budget to make sure you can pay your own medical expenses.
"If you look at what employees are going to have for health care when they retire, they are going to have Medicare or Medicaid benefits, period." That's the blunt assessment of Jerry Mattern, chairman of the compensation and benefits committee of the Society for Human Resource Management, based in Alexandria, Va. (Medicare covers basic inpatient and outpatient health-care expenses for people 65 and older, while Medicaid pays a major share of long-term care and other medical expenses for people with low income and assets.)
The solution: Begin saving now to pay for your own policy after retirement or for a "Medigap" policy under Medicare. The annnual cost for such plans can vary from several hundred dollars to a couple of thousand, depending on where you live. State insurance regulations vary widely.
RISING COSTS.
What's behind the decline in retiree health benefits? Rising health-care costs. In 1999, coverage for a pre-Medicare-eligible retiree ran $5,470 (more than $1,000 above the average for an active employee) and $2,160 for a retiree 65 or over (older retirees cost less because what the employer pays is on top of the coverage they already get from Medicare), according to a survey of employer-sponsored health plans by benefits consultants William M. Mercer Inc. Prescription-drug costs for pre-Medicare retirees account for 14% of total drug costs. The figures is even higher -- 20% -- for Medicare retirees, prompting some companies to totally exclude drug coverage from their plans.
Workers at most small businesses have never been offered retiree health coverage and never counted on it. But as recently as the 1980s, almost 70% of companies with more than 500 workers provided some type of coverage, says the U.S. General Accounting Office, a watchdog arm of Congress. Since then, the number of companies providing coverage has been cut in half, to 35% offering coverage to retirees under age 65 and 28% offering it to retirees 65 and older, according to the Mercer study.
This trend has accelerated since 1993, when a key change in accounting rules for large corporations went into effect. Known as Financial Accounting Statement No. 106, it required companies to show on their balance sheets their future liability for providing retiree health-care coverage. Many corporate executives looked at the numbers and "were horrified by how big [the figure] was, so they made some changes in their programs," explains Anthony Knettle, vice-president for health affairs of the ERISA Industry Committee (ERIC), an organization of the nation's largest employers. (ERISA is the federal law that governs management of workers' pension and "welfare," or health, funds.)
In most instances, the cutbacks apply only to future retirees. But the problem, experts say, is that those reductions will kick in just as Medicare and Medicaid programs are likely to be facing serious struggles to cover their costs.
TRIMMED TABS.
In a recent talk to ERIC members about the coming "crisis" in health care, Mercer principal George Wagoner said uncertainty about the future of Medicare and other health-care plans have prompted employers who still have retiree health benefits to rein in their programs. Among the increasingly common constraints: increased age-eligibility standards, higher contributions from retirees, caps on employer contributions, and shifting costs such as deductibles and co-payments to the retirees.
ERIC has created a task force on retiree health as part of an initiative dubbed "The Future of Employers' Commitment to Providing Health Care Coverage." The group will assess the viability of some approaches it has tried the past few years. Yes, the word "commitment" appears in the title of the initiative. But if you work for a large company that's subject to ERISA and you're making financial plans for retirement, keep this in mind: Your employer has no legal commitment to help pay for your health care when you retire. Even if you have a company plan now, the employer has a right to change or terminate it.
Federal rules that require advance notice and disclosure of plan changes are the only employer "commitment" with any teeth. To learn how these rules work and what rights you have, look up "Can the Retiree Health Benefits Provided By Your Employer Be Cut?" on the U.S. Labor Dept.'s Web site. In the meantime, start setting aside money to pay for your own health insurance.
Hoffman is a freelance writer and author of Bankroll Your Future: How to Get the Most from the Government For Your Retirement. She writes about retirement for BW Online every other Thursday. You can reach her with comments or story ideas at ellenshof@hotmail.com
EDITED BY BETH BELTON
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