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Rising Costs Change Options for Retiree Health Benefits

Fewer employers, especially new companies, are able to offer healthcare benefits to their employees when they retire.

The share of employers who are offering retiree health benefits has declined over time, according to a new report, Retiree Health Benefits at the Crossroads, by the Kaiser Family Foundation.

Health benefits are an important source of supplemental coverage for roughly 15 million Medicare beneficiaries and a primary source of coverage for more than two million retirees in the public and private sectors who are younger than 65.

In the last 25 years, the percentage of large firms offering retiree health coverage has dropped from 66 percent in 1988 to 28 percent in 2013. Some companies chose to stop offering benefits, primarily to future retirees, while newer companies never created the option to provide health benefits when their employees retire, according to the report.

Today, fewer than one in five workers are employed by firms offering retiree health benefits. The report examines the role of retiree health coverage for early and Medicare-eligible retirees, the changes taking place now and the outlook for the future.

Key findings include:

  • In 2012, 45 percent of retirees age 55 to 64 had healthcare benefits from a former employer, reflecting a small decline from 2009 when 50 percent of early retirees had health benefits in place.
  • Prior to the availability of health marketplaces, insurance reforms and subsidies provided by the Affordable Care Act, pre-65 retirees without access to employer-sponsored retiree health coverage or coverage from spouse had few good coverage options, as the availability of coverage for pre-65 retirees in the individual health insurance marketplace was unreliable, expensive and subject to underwriting and potential denial of coverage. 
  • Among all large firms offering retiree health benefits, 90 percent of firms offered coverage to retirees under the age of 65, compared to 67 percent of firms offering coverage to Medicare-age retirees.

Overall, the report finds that continuing pressure due to rising healthcare costs is causing more interest in changing to a defined contribution approach and organizing access to nongroup coverage for Medicare-eligible retirees. Employers using the new federal and state health insurance marketplaces created through the Affordable Care Act are considering those as an option to offer nongroup coverage for their pre-65 retiree population.

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