The number of employers that provide health benefits to retirees has dwindled significantly over the past 15 years, according to a recent report issued by the Employee Benefit Research Institute (EBRI). According to the issue brief – Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997-2010 (pdf) – the percentage of employees who work for employers that offer retiree benefits has fallen from 28.9 % in 1997 to 17.7 % in 2010. This decline is unlikely to stop, the EBRI claims, as employers are not required to provide health benefits to retirees unless such benefits are specifically promised to them, nor are employees required to pre-fund retiree health benefits. Those employers that do provide retiree health coverage will likely make changes to their benefits package to contain costs, such as raising retiree plan premiums, reducing benefits, and narrowing eligibility requirements.
The report explains that a 1990 change in accounting rules was a major factor contributing to the decline in the provision of retiree health benefits. Specifically, the EBRI points to Financial Accounting Statement No. 106 (FAS 106), Employers’ Accounting for Postretirement Benefits Other Than Pensions, that the Financial Accounting Standards Board (FASB) issued in December 1990 as “one of the most important factors (if not the single most important) contributing to the decline in the availability of retiree health benefits.” This accounting rule change “required companies to record retiree-health-benefit liabilities on their financial statements in accordance with generally accepted accounting principles, beginning with fiscal years after Dec. 15, 1992.” This accounting modification “dramatically affected companies’ reported profits and losses,” leading many private sector employers to revamp their retiree health programs to control for costs.
Consequently, the provision of retiree health benefits in the private sector plummeted. The EBRI issue brief cites several studies evidencing this decline. For example, the brief references a report by the Agency for Healthcare Research and Quality (AHRQ) finding that in 2011 only 6 % of private sector employers offered health benefits to early retirees. Predictably, the larger the firm, the more likely it is to offer these benefits.
Most of the employers that do offer retiree health benefits have already implemented or intend to implement additional cost-cutting measures. Approximately 75 % of these employers reported that they increased premiums for early-retiree coverage between 2011 and 2012, as well as for Medicare-eligible retires. Thirty-four percent responded that they increased cost-sharing for early retirees, and 31 % did so for Medicare-eligible retirees during this time. Three-quarters of mostly private sector employers claimed that they put a defined dollar cap on their contributions. Half of these employers provided “access-only” plans, whereby the retirees pay the full cost of coverage.
As for future cost-cutting measures, 43 % of employers responded that they are “very likely” to increase retiree premium contributions next year, while another 35 % claimed they are “somewhat likely” to do so. About a fifth (21 %) of employers said they are “very likely” to increase cost sharing, with another 32 % stating that they are “somewhat likely” to do so.
Many employers believe that the availability of health insurance through future state-based health insurance exchanges established under the Affordable Care Act (ACA) will become a viable option for retirees, thereby obviating the need for them to similarly provide retirees with health benefits.
The EBRI notes that more current employees anticipate receiving retirement health benefits than will actually receive them, although this expectation gap is closing. Specifically, in 1997, 45 % of employees expected to receive retiree health benefits while only 27 % of early retirees and 20 % of Medicare-eligible retirees received them. In 2010, the number of those expecting to receive retiree health benefits fell to 32 %, while 25 % of early retirees and 16% of Medicare-eligible retirees had them.
The issue brief concludes that “public policymakers face the difficult task of trying to provide solutions for a system that is largely voluntary.”