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Most employers to continue retiree drug benefit

/ Source: The Associated Press

Four in five businesses that provide prescription drug coverage for their retirees will accept a government subsidy next year and continue providing that benefit, according to a survey of 300 large companies.

With the beginning of a new drug benefit under Medicare, some feared that businesses would drop coverage for retirees.

Retirees would generally lose under such a scenario because the Medicare benefit is usually not as generous as that provided by private employers. The subsidy provided to businesses amounts to 28 percent of a retiree’s drug expenses — versus about 75 percent under the new Medicare benefit.

“The widespread dropping of drug benefits that some had feared has been averted so far as business figure out what their long-term response would be,” said Drew Altman, president and CEO of the Kaiser Family Foundation, which conducted the survey along with Hewitt Associates, a consulting company.

Among the companies not accepting the subsidy, about 10 percent said they would provide supplemental coverage to what is offered through Medicare. Nine percent were dropping coverage altogether.

It’s possible that some of the companies dropping coverage would have done so even if Congress had not approved a new benefit under Medicare. The number of large companies offering retiree health benefits has steadily declined over the years — from about 66 percent in 1988 to about 33 percent this year.

Kaiser officials said that the 9 percent of companies dropping coverage were primarily smaller firms, and that means only about 2 percent of the retirees identified through the survey would have to move to a private drug plan offered through Medicare.

“That’s a smaller share than many had feared,” said Tricia Neuman, a vice president with the Kaiser Family Foundation, a nonpartisan research organization.

Under the Medicare law, the government provides businesses with a financial incentive to continue providing retirees with prescription drug coverage. For the typical company, that translates to a savings of about $626 per retiree next year, the survey showed.

Companies that provide the supplemental coverage will save even more, about $826 per retiree. Kaiser officials said the extra savings will probably lead more companies to offer that type of coverage, which would lead to more costs for the government in future years.

Gary Karr, a spokesman for the Centers for Medicare and Medicaid Services, said the subsidy helps taxpayers because they pay less when a retiree stays in employer-sponsored coverage rather than government-sponsored coverage.

“Health insurance and drug coverage has generally been declining the last 10 years. The drug subsidy was passed in part to stem the tide,” Karr said. “It seems to me from the survey that seems to be working.”

The survey indicates the long-term future is less certain for employer coverage of prescription drugs. Looking ahead to 2010, only 50 percent of firms said they are likely to continue retiree drug coverage, while 22 percent said they likely won’t, and 28 percent say they don’t know.