updated 1/14/2004 10:13:35 AM ET 2004-01-14T15:13:35

Companies continued to slash retiree health benefits over the last year, with 10 percent of firms eliminating coverage for future retirees and 71 percent increasing retirees' contributions for their coverage, according to a new study.

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The survey of 408 large companies released Wednesday found that a fifth of companies said they were likely to terminate health coverage for future retirees in the next three years. Eighty-six percent of companies said they would increase retiree coverage contributions over that period.

The survey was conducted between June and September 2003 by benefits consulting firm Hewitt Associates and the nonprofit Henry J. Kaiser Family Foundation. A similar survey the firms did in 2002 found that in a two-year period, 13 percent of companies eliminated health benefits for future retirees and 44 percent increased retiree contributions to premiums.

A separate Hewitt study of employers with more than 1,000 employees found that in 2003, 57 percent of firms offered health benefits to Medicare-eligible retirees, down from 80 percent in 1991.

"The bleeding hasn't stopped," foundation president Drew Altman said. "I think it is significant that employers are telling us to expect more of the same."

Altman said employers' actions on retiree health benefits indicate their inability to significantly lower overall health care costs. The survey found the cost for employers and retirees for health benefits surged an estimated 13.7 percent, while the cost of providing health benefits to active employers rose 14.7 percent.

The survey was taken before Congress passed a Medicare prescription drug benefit last year. Many feared that benefit would provide companies with an excuse to drop coverage. Previous Hewitt studies found that well over half of employer costs for retirees over age 65 are from prescription drugs.

To stop the erosion of corporate-sponsored retiree health plans, the new law includes an $89 billion subsidy for employers that retain coverage. Experts say it is too soon to say whether that subsidy will stem benefits' erosion. Most agree that companies won't terminate benefits for current retirees, but fewer firms will offer them to younger workers.

"It is a significant amount of money," said Frank McArdle, manager of Hewitt's Washington D.C. research office. He added that some companies continue to maintain benefits without any help from the government, so the subsidy should salvage some coverage.

Of Medicare's 51 million beneficiaries, 15.6 million are covered by company health benefits. Of those, about 3.8 million would probably have lost coverage if there was no subsidy, according to projections by the Congressional Budget Office.

The budget office estimates that 2.7 million retirees would be dropped from company coverage with the subsidy.

Still, McArdle said he expected the results of next year's survey to resemble the 2003 findings. He added it will take time for employers to figure out how their retiree plans will be affected by the new law and subsidy, which go into effect in 2006. The state of the economy also will figure into whether employers opt to keep coverage, Altman said.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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