Employer Sponsorship of Retiree Health Benefits Has Declined

The availability of employer-sponsored retiree health benefits has declined during the last decade. Two widely cited surveys—by William M. Mercer, Incorporated, and the Kaiser Family Foundation and Health Research and Educational Trust (Kaiser/HRET)—indicated that nearly half of large employers offered retiree health benefits in the early 1990s,  but their most recent surveys reported that this proportion has declined to about one-third of large employers. The decline in large employers offering retiree health benefits has continued in recent years, despite several years during the latter part of the 1990s experiencing a strong economy and relatively small premium increases. Thus, paying for these services may present a significant and growing financial burden for many individuals and for public health care programs. Therefore, even in retirement, over half of those aged 55 to 64 in 1999 continued to rely on health insurance either from their former employer or their spouse’s employer. The individual insurance market may be an option for some retirees until they become eligible for Medicare, but this alternative can be costly as well. Nearly one-third of Medicare-eligible retirees obtain this supplemental coverage from an employer, and most other Medicare beneficiaries seek other sources of supplemental coverage, such as Medigap or Medicaid, or participate in Medicare+Choice plans, which typically have low cost-sharing requirements and cover services such as prescription drugs that traditional Medicare does not cover. Whether they include prescription drug coverage or not, Medigap policies can be expensive—the average annual Medigap premium per covered life was more than $1,300 in 1999— and still leave retirees with significant out-of-pocket costs. Less than 10 percent of individuals 65 or older and an even lower percentage of those younger than 65 have purchased long-term care insurance.
What GAO Found

In 1999, about 10 million Americans aged 55 and older relied on employer-sponsored health benefits until they became eligible for Medicare or to pay for out-of-pocket expenses not covered by Medicare. However, the number of employers offering these benefits has declined considerably during the past decade. Despite the recent strong economy and the relatively low increases in health insurance premiums during the late 1990's, the availability of employer-sponsored health benefits for retirees has declined. Two widely cited surveys found that only about one-third of large employers and less than 10 percent of small employers offer such benefits. Alternative sources of health care coverage for retirees may be costly, limited, or unavailable. Retirees not yet 65 may be eligible for coverage from a spouse's employer or from their former employer. Other retirees not yet 65 may seek coverage in the individual insurance market, but these policies can be expensive or may offer more limited coverage, especially for those with existing health problems. Nearly one-third of retirees eligible for Medicare have employer-sponsored supplemental coverage, but many others buy private supplemental coverage known as "Medigap." It can cost upwards of $1,300 per year for Medigap policies that include prescription drug coverage. Neither Medicare nor private insurance covers a significant share of long-term care expenses.