WASHINGTON, June 28, 2006 - Despite widespread use of the Medicare federal
subsidy, a vast majority of employers are planning to curtail their retiree
medical plans for current and future retirees in the next five years,
according to a new study by Watson Wyatt Worldwide, a global human capital
consulting firm.
The survey of 163 companies found that only 5 percent of employers do not
expect to place any additional restrictions on their medical benefits for
future retirees over the next five years and 7 percent do not expect to
implement further restrictions for current retirees. Fourteen percent of
employers plan to eliminate the benefit entirely for future post-65
retirees and 6 percent plan to eliminate it for their current post-65
retirees.
"One bit of good news for employees is that the vast majority of employers
currently providing retiree medical benefits will continue to do so," said
Cara Jareb, director of retiree medical consulting at Watson Wyatt. "The
bad news is that retirees - especially future retirees - will have to pay
more for their coverage."
Nearly two-thirds of employers (65 percent) anticipate increasing the
financial contributions for future retirees and half (50 percent) expect to
change their plan design. Twenty-four percent intend to tighten
eligibility for future retirees and 10 percent expect to place a new or
lower cap on their employer contributions. As more companies adopt
account-based programs for current employees, 26 percent anticipate
offering this option to their future retirees
Employers Plan Further Restrictions to Retiree Medical Benefits
Percent of Employers Planning Action Over Next Five Years
Planned Initiatives
Current Retirees
Future Retirees
No further restriction of offerings
7%
5%
Eliminate benefit for post-65 retirees
6%
14%
Change plan design for post-65 retirees
49%
50%
Increase employee contributions
64%
65%
Tighten eligibility
8%
24%
Add cap or lower existing cap
8%
10%
Add account-based options
10%
26%
Many employers are currently relying on federal subsidies from the new
Medicare Part D prescription drug program to offset the cost of their
retiree medical plans. Out of the 77 percent of employers that took the
federal subsidy in 2006, 64 percent plan to take the federal subsidy in the
future.
"Employers are biding time with the federal subsidy for now as they sort
out their long-term retiree medical strategies," Jareb said. "But many of
them will likely find that relying on the subsidy will not be the most
effective solution to control costs going forward. At that point,
employers will need to explore other ways to fund and deliver these
benefits."
About Watson Wyatt Worldwide
Watson Wyatt (NYSE: WW) is a leading global human capital and financial
management consulting firm. The firm specializes in employee benefits,
human capital strategies, technology solutions, investment consulting, and
insurance and financial services. Watson Wyatt has 6,000 associates in 30
countries and is located on the Web at www.watsonwyatt.com.