Most large companies will keep retiree drug benefits -- for now

A government subsidy will help many large employers maintain such plans in 2006, but fewer firms are sure about their plans for future years.

By David Glendinning, AMNews staff. Dec. 26, 2005.

Washington -- Seniors who used to work for large companies that pay for part of their medical costs in retirement might not need to bother asking a physician about which Medicare drug plan is best for them. They could be just fine where they are.

A recent survey of 300 firms with 1,000 or more employees that offer retiree benefits found that nearly 80% will continue offering drug coverage even after Medicare launches its program in 2006. Another 10% will help pay for the costs of a Medicare drug plan, while only 9% will end prescription coverage altogether, according to the survey by the Kaiser Family Foundation and Hewitt Associates.

The results indicate that fewer seniors than originally thought will be forced to turn to the government if they want to continue getting help with their drug bills, said Drew E. Altman, PhD, the foundation's president and CEO.

"The widespread dropping of drug benefits that some had feared has been averted so far as businesses figure out what their longer-term response will be," he said.

Seniors who decide that the coverage they have is good enough to keep will not need to pick from the multitude of Medicare drug plans that will start operating in January. If the retiree coverage is as good as or better than what the federal government is offering, beneficiaries can decide to keep the benefits and will not incur a penalty for joining a Medicare drug plan in a future year.

A financial incentive exists for large employers to keep the commitment they made to former workers. Those who maintain such "creditable" drug coverage will receive a government subsidy equal to 28% of the seniors' drug costs under $5,000. On average, the firms can expect to save more than $600 on health costs per beneficiary by taking this option, according to the Kaiser/Hewitt study.