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More Firms to End Health Benefits for Retirees

Survey Shows Other Companies Raising Premiums to Pay for Escalating Costs

By Bill Brubaker

Washington Post Staff Writer

Thursday, January 15, 2004; Page E04

Twenty percent of large, private-sector U.S. employers will probably terminate health insurance benefits within the next three years for workers when they retire as medical costs continue to increase, a new study reported yesterday.

Over the past year, 10 percent of companies with 1,000 or more workers eliminated health benefits for retiring workers, according to the study by the Henry J. Kaiser Family Foundation, a nonprofit research group, and Hewitt Associates, a human resources consulting firm.

"Fewer retirees will have health coverage in the future and those who do will be paying more for their health care," said Drew E. Altman, Kaiser's president and chief executive.

Many companies are eliminating benefits for new retirees to ensure coverage for their existing workers, analysts say.

The study of 408 companies, conducted between June and September of last year, confirmed a trend that has been gaining momentum over the past decade. A survey released by Kaiser last fall reported that 38 percent of employers with 200 or more workers offered health coverage to retirees in 2003, down from 66 percent in 1988.

The new Kaiser survey was completed before Congress passed the Medicare prescription drug bill in November, which offers an $89 billion subsidy to encourage employers to maintain retiree health coverage.

"That's the bright spot," said Kate Sullivan, health care policy director of the U.S. Chamber of Commerce. "That [subsidy] will help stem the loss of retiree coverage."

The survey found that 71 percent of companies hiked retiree premiums over the past year and 86 percent planned to do so over the next three years.

United Airlines' parent company, UAL Corp., for instance, announced yesterday it will seek to increase medical benefits contributions by its 35,000 U.S. retirees.

Peter McDonald, United's executive vice president for operations, said this "difficult but necessary" step would help the airline emerge from Chapter 11 bankruptcy protection.

"This change will bring the medical benefits provided to current retirees more in line with those available to future retirees and offered by other large U.S. corporations," he said in a statement.

The Chamber of Commerce's Sullivan said the results of the Kaiser survey were not surprising. "While health care costs have been going up, employers have been cutting back on retiree coverage in an effort to maintain coverage for active employees," she said.

An improving economy might help employers maintain benefits, Sullivan said. "But are we going to see employers starting to add retiree health benefits? Not like our parents got."

© 2004 The Washington Post Company