Employer provided health care coverage has often been the most reliable form of coverage for medical and prescription drug costs for retirees. But the number of large employers offering health insurance coverage to retirees age 65 and older is rapidly declining, according to a report recently released by Health Affairs, which looked at an annual Mercer/Foster Higgins survey.

        The number of employers with 500 or more employees who provide retiree medical benefits fell almost 60 percent, to 23 percent in 2001 from 57 percent in 1987. If this trend continues, employer provided health care would go the way of the dinosaurs. Paying for health insurance coverage during retirement adds to the strain on the savings of a generation of future retirees who, by many measures, aren't even close to reaching the savings they will need for a secure retirement.

        For those retirees fortunate to have health insurance coverage provided by their employer, employers have cut back benefits, passed on more costs to their retires, or both.
 

Future costs unfunded

        The costs of coverage for health care in retirement are considerable. In an EBRI Issue Brief released earlier this year, future retirees would need to save an additional $87,000 to $558,000 to have the funds needed to pay for health and prescription drug coverage from age 65 to age 90. The amounts needed more than double for those expected to live to 100.

        One of the items on the chopping block is prescription drug coverage, as employers struggle to contain the rising cost of drug benefits. Medicare, the government health insurance program for retirees, currently offers no drug coverage. The Senate has proposed a government mandated prescription drug program to be included under Medicare, but its prospects to become law are dimmed by the costs to taxpayers and the impact to those retirees with employer provided benefits.
 

Planning before retirement

        Faced with the near certainty that a future retirement will not include employer sponsored health benefits, near retirees need to consider their options and include a strategy for covering their health care and drug needs years before they enter into retirement.

        Workers nearing retirement need to find out what, if any, retiree health benefits are available from their current employer. If considering changing jobs, they should look for an employer who provides access to some form of retiree health care coverage.

        Some employers offer pre-retirement tax-favored savings programs, including retirement medical accounts and pretax savings programs, which can help older workers save for health costs in retirement. Employer retirement programs and savings programs can be particularly advantageous since workers can save for future health care costs with pre-tax income while employed, whereas retirees must pay for their health insurance costs from after-tax retirement income.

        Non-working spouses should consider reentering the workforce to seek employment with a firm that provides retiree medical benefits or savings programs. In the least, late stage working couples, or DINKS (dual income, no kids) can put the extra income to work by building up their savings to better prepare for the additional financial burden of medical costs in retirement.

        Pre-retirees need to look at the amount of medical care they use today and factor this into their savings projections for retirement. If they plan to retire before age 65, since they will not be eligible for Medicare coverage, they will need to seek full health insurance coverage and will need to consider how pre-existing conditions might affect the cost and availability of health insurance coverage.

        Congress mandated the types of Medicare Supplemental Insurance Plans, or Medigap coverages that health insurance companies must offer if they want to sell policies to retirees that supplement Medicare health benefits. Medigap policies types H, I and J which offer some prescription drug coverage, should be considered. But many health insurance companies, faced with higher than anticipated claims, are exiting this business, stranding a growing number of retirees with fewer options. Those nearing retirement should check out the Medicare Personal Plan Finder on the Medicare.gov Web site to see what coverage, if any, is available from health insurers in their area.
Retirees with prior military service should also check with the Veterans Affairs Administration as to the medical and drug benefits they are entitled to. Often the drug benefits are provided at lower costs than what can be provided under employer provided benefits programs.

        Also, lower income retirees should look to see if they qualify for prescription drug affordability programs, such as Pfizer's Share Card program, which provides a $15 flat fee for their prescription drugs, or Johnson & Johnson's Together Rx Card, which can provide savings ranging from approximately 20 to 40 percent off the price of prescription medicines

        The reality is that for many workers nearing retirement age, the only viable strategy will be to continue working so that they remain covered under an employer's health insurance program and can continue to save enough to pay for future medical expenses.