Future Retirees to Shoulder More Health-Care Expenses, Study Says

WASHINGTON —  Future retirees should expect to cover substantially more, if not all, of the costs of their health care, as employers increasingly reduce or eliminate retirement medical benefits, according to a study expected to be released today.

Few workers today are ready for this significant change, according to the study’s authors, who add that if today’s workers don’t save more to finance both living and potential medical expenses they may have to work considerably longer.

Companies are expected to pay less than 10% of total medical expenses for retirees by 2031 as the result of cutbacks already underway, according to the report by Watson Wyatt Worldwide, a human resources consulting firm.

Large employers now typically pay more than half of total retiree medical expenses, a benefit that’s particularly valuable to those who retire early. Those who wait until age 65 have the bulk of routine medical costs covered by Medicare and generally have retiree plans that provide supplemental coverage, such as reimbursement for prescription drugs. But increasing health-care costs--as well as an accounting change that makes companies set aside money to address the future cost of promised benefit plans--are forcing companies to scale back how much they are willing to offer.

“The burden on future retirees to pay for their own medical costs is increasing dramatically,” said Sylvester J. Schieber, Watson Wyatt vice president and an author of the study. “If you can’t save more, you are either going to face a lower standard of living or a longer work life.”

Some employees already are working longer simply because of health care, experts say.

“I already know people who don’t retire--or find part-time jobs in retirement--so they can keep their health benefits as long as possible,” said Martin J. Smith, benefits specialist at the Los Angeles law firm of Sheppard Mullin Richter & Hampton.

About 20% of U.S. employers studied have eliminated retiree medical benefits for new hires; an additional 17% will allow new hires to remain on the company plan but require that they pay the full premiums, the report said. Other companies are capping their contributions, linking them to the retiree’s length of service or imposing stricter minimum-service requirements.

The study is based on benefit plans of 56 large employers with at least 5,000 employees. The growing population of retirees, rising life expectancies and an uncertain business outlook also are contributing to the trend.

But workers are being confronted by health-care concerns even before retirement nears. Workers now are paying more as their benefits erode, a study released this month by the Henry J. Kaiser Family Foundation found.

The average premium increase for employers was 13%, the highest since 1990--and marked the second straight year of double-digit inflation, according to the Kaiser study. Single premiums are now on average $3,060, with $7,954 for family coverage.

The amount workers pay for coverage also has risen substantially. Employees now pay an average of $454 a year for single coverage, a 26% increase from last year. Family coverage averaged $2,084 a year, up 16%. For the first time in four years, more workers experienced a cut in benefits than an increase.

Retiree medical benefits were relatively inexpensive in the early 1960s, and the introduction of Medicare in 1965 made the benefits even more affordable. But the cost of maintaining those benefits has surged.

Nine of 10 large employers that offered retiree medical benefits to workers older than 65 in 1984 required service of five years or less. Last year, only about a quarter offered that benefit, according to Watson Wyatt. For future retirees, only about 14% allow workers to qualify as quickly.