If you’re in your 20s or 30s, don’t expect much help from your employer with your medical bills during retirement.
By 2031, large U.S. employers will foot the bill for just 10 percent of medical expenses for their retired employees – down from more than 50 percent now, according to a study released last week by Watson Wyatt & Company, a human-resources consultancy in Washington, D.C.
Watson Wyatt’s survey of 56 large employers (at least 5,000 workers) shows that most are curtailing or completely eliminating their retiree medical-benefit programs – a trend that likely will accelerate as health-care costs drift higher.
The farther away an employee is from retirement, the less they can expect to see in the way of employer-provided health benefits during retirement. Twenty percent of the employers studied have eliminated retiree medical plans for new hires altogether; 17 percent will require new hires to pay the full premium for coverage.
“Today’s retirees are in much better shape than retirees 15 or 20 years from now,” said Charlie Commander, a consultant at Watson Wyatt’s Boston office.
Still, today’s retirees don’t have it made. The average 65-year-old’s lifetime medical costs are an estimated $51,000, according to Watson Wyatt. Even with Medicare, a person 65 or older can expect to pay $3,200 in medical costs annually, which includes supplemental insurance, prescription drugs and other costs not covered by Medicare.
Employers are offering less help in covering those costs, with the average contributing 60 percent toward health insurance premiums for future employees, vs. 80 percent for current retirees, according to Watson Wyatt’s study.
Also, about half of the employers in the study are putting ceilings on contributions. The median employer-contribution cap of $2,000 for 65-and-older retirees will drop to $1,740 for future retirees; the median of $4,450 for early retirees will be trimmed to $3,900 in the future, according to Watson Wyatt.
Commander said hefty out-of-pocket medical costs catch many new retirees off guard.
“I think there is a misperception of what Medicare actually provides,” Commander said. “A retiree’s insurance coverage will be significantly less than he or she likely enjoyed while working full time, and most don’t realize the costs that they’ll be facing.”
The best corporate retiree health-care packages will pay for essentially all medical costs that fall outside of Medicare coverage, including supplemental insurance plans such as Medigap policies. But those plans are “going the way of the dodo,” said Clare Hushbeck, a senior legislative representative for AARP in Washington, D.C.
Max Powell, former president and CEO of UnitedHealthcare of New England and now a part-time consultant, said the slimming of health benefits for retired workers mirrors the same trend that is occurring for active employees.
“It wasn’t long ago that an employee went to work for an employer and got health insurance right away, and the employer paid for all of it,” Powell said. “That’s just not the case anymore.”
While both active employees and retirees are paying a greater share of their own medical costs, the people who are hit hardest by employers pulling back on health benefits are early retirees, who aren’t yet eligible for Medicare.
“Retiring when you’re 55 or 60, when you don’t get Medicare until 65, is pretty risky even if you’re in excellent health,” said Hushbeck of AARP. She added that many aging workers delay retirement so they can close the gap between leaving their company plan and becoming Medicare-eligible.
Early retirees have limited options until they reach 65, Hushbeck said.
“They can either get an individual plan or go through a professional group that helps buy insurance, but those options are prohibitively expensive,” she said.
Powell, who is retired at 60, said he will continue purchasing an individual health plan for both himself and his wife until they reach 65. The cost: more than $8,000 a year.
Public-sector employees generally enjoy the best health benefits when they retire, Commander said. The State of Rhode Island’s early retirees get the same health benefits as active employees, according to Jeanne E. Peloquin, chief of state employee benefits at the Department of Administration. State retirees 65 and older are enrolled in Blue Cross HealthMate Coast-to-Coast.
