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Retiree Health Benefits Dwindling

Reform's subsidy for pre-65 coverage likely to run out

By Susan Kelly | Updated on June 29, 2010

The $5 billion subsidy in the healthcare reform legislation for companies that provide medical coverage to pre-65 retirees may prove the last hurrah for such benefits. Although the subsidy was intended to bolster companies’ coverage for earlier retirees until insurance exchanges begin in 2014, analysts say the $5 billion will run out in half that time. And a recent survey by HR consultancy Towers Watson shows many employers are moving away from providing retiree health benefits.

Of course, the ranks of companies that provide such benefits has been eroding for some time. Mercer data show just 28% of companies with 400 or more workers provided health insurance to pre-65 retirees last year, down from 46% in 1993. And according to the Towers Watson survey, which was conducted after the Patient Protection and Afford Care Act (PPACA) became law, 43% of companies that currently provide retiree medical plan to reduce or eliminate those benefits. Among companies that would be subject to the excise tax on costly health benefits that goes into effect in 2018, the portion that say they’re likely to cut back or eliminate retiree medical rises to 55%.

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