Monday, May 24, 2004

Costs pound retirees

Companies cut, drop coverage

By Tim Bonfield
The Cincinnati Enquirer

Sally Coaston
Sally Coaston, left, and Betty Anderson, both of Madisonville, gather with other seniors to get information about the new Medicare prescription drug benefit bill during a Medicare Road Show.
(Gary Landers/The
Cincinnati Enquirer)

If Thomas Dobbins had it to do over again, he would turn down the early retirement offer.

Two years after he quit his old job, the Fairfield man is stunned by the spike this year in his health insurance costs - from $80 to $134.50 a month, a 68 percent hike.

"Just about everyone I know who took early retirement is back working again, at least part-time," says Dobbins, 59, a former Fluor Corp. field engineer. He's grateful that his former employer offers coverage to retirees, but if he'd known costs would rise so fast, "I would have stayed where I was or taken another job with the company."


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Rules, benefits of drug plan

The rising cost of care is the No. 1 health-care concern in Greater Cincinnati and Northern Kentucky. An Enquirer poll in January found that nearly 57 percent of area adults believe that health care is in a "crisis" - not because quality care is lacking, but because high costs are putting care out of people's reach.

Like Dobbins, three of every four local adults worry about increasing monthly deductions for health insurance, the poll shows. Also like Dobbins, more than 250,000 area retirees are discovering just how vulnerable they are:

• Only 11 percent of private U.S. employers offer health benefits to retirees, according to Towers Perrin, a benefits consulting firm. Retirees who don't have company benefits pay hundreds of dollars a month out-of-pocket for coverage - if they can get it at all. Most rely on Medicare, after age 65.

• Even employers that do offer retiree health insurance - typically only governments and the largest private companies - are cutting back. While 80 percent of the nation's biggest companies covered former workers over age 65 in 1991, only 61 percent did in 2002.

• Locally, three-fourths of large employers that provide benefits increased retirees' costs in the past year. A third dropped retiree benefits for new hires, and one-sixth cut subsidies for spouses.

Retirees are finding that less is costing much more, at a time of their lives when they may need health care most.

"Most people don't have a clue as to how vulnerable they are," says Richard Bank, director of the AFL-CIO's center for collective bargaining in Washington, D.C. "From an employer's point of view, cutting retiree benefits is easier because the retirees are gone. Their morale doesn't affect the workplace like cutting benefits to active workers would."

Early retirement beyond reach

Early retirement has never been attainable for most Americans, and the soaring costs of health care have made the dream more unrealistic than ever. Yet many people still don't realize it, says Dallas Salisbury, president of the Washington, D.C.-based Employee Benefit Research Institute.

"Far fewer people will be retiring before age 65 than do today. Too many people hit the eligibility age (set by their employer) and immediately say, 'I'm outta here.' And six months later they find out they couldn't really afford it," he says.

For would-be retirees, health care costs - from rising insurance bills to uncovered pills and services - typically rank as their biggest unplanned-for expense.

Russ Frauenknecht, a 70-year-old General Motors retiree who lives in Lebanon, says he gets good drug coverage through his former employer, on top of Medicare. His biggest fear is that GM will dump him and his wife once Medicare reforms take effect in 2006, providing prescription drug benefits for the first time.

His wife takes at least 11 prescriptions for Parkinson's disease, diabetes control and a thyroid disorder. Under the GM plan, the couple pays $5 per refill, but the pills really cost about $10,000 a year. The drugs would cost the couple more than $4,000 a year under the new Medicare drug benefit.

"If GM drops my drug plan, it would hurt me big time," he says.

More cuts to come?

In general, the only retirees who still have health benefits from their previous employers worked as teachers, firefighters or in other public jobs, or for companies with more than 1,000 employees or with a history of strong union contracts.

Analysts predict that even more employers will cut retiree health benefits once the Medicare drug program starts in 2006.

At Cinergy Corp., the Cincinnati utility has 7,300 active employees and 5,000 retirees ranging in age from 55 to 104, says Karen Feld, general manager of compensation and benefits.

The company is trying to avoid big changes in health plans affecting current retirees. But starting in 2005, new hires will be limited to a retirement plan that pays a fixed amount for benefits rather than a percentage, Feld says.

"We looked at no longer covering people once they qualify for Medicare. But that would be way too painful for retirees," Feld says. Cinergy is one company that decided to accept government subsidies aimed at helping companies keep health plans for retirees after 2006.

Employers that don't drop their plans can get subsidies covering up to 28 percent of retiree health plan costs. And the subsidy isn't taxed, says Leslie Norwalk, acting deputy administrator for the Centers for Medicare & Medicaid Services.

Subsidies come with a lot red tape, Feld says, but companies still may find them a better option than dropping a popular perk.

"We know that people like their retiree health plans," she says.

Worse for the self-employed

The rising costs of health care can hit even harder for those who never had retiree health benefits, such as the self-employed, people working for small businesses and lower-income people who spend their working years stringing together part-time jobs.

Ron and Sharon Braunstein of Deerfield Township ran their own medical and scientific videography business for years. But their business slowed dramatically once Ron, 68, reached retirement age and even more after he was diagnosed with leukemia last year.

Now, the couple lives in two worlds of health care benefits. For Ron, Medicare and a supplemental plan that costs about $140 a month have covered tens of thousands of dollars in bills, including a one-time medication that cost $7,500.

But Sharon, 54, isn't eligible yet for Medicare. For several years, she has bounced from insurer to insurer trying to find affordable coverage on an increasingly limited, semi-retired income.

"We were constantly shopping around. We even called some numbers people put on telephone poles," Ron says.

About three years ago, the company covering Sharon increased its fees from $338 to $556 a month. After a bad experience with a discount service, Sharon signed up this year for another insurance plan that costs $238 a month. But there's no guarantee that her rates won't shoot up again next year.

"It has been a real hassle. There has to be a way to streamline the process somehow," Sharon says.

Unlike younger budget-pinched workers who often are healthy enough to risk going without health insurance, people over age 50 are more likely to encounter health problems.

And because of that higher risk, retirees have more trouble buying affordable insurance on their own.

Several insurers in Greater Cincinnati sell individual health plans, but such plans are allowed to adjust their rates based on a person's medical history. And in many cases they can refuse to sell a policy. Many insurers are required by federal law to offer enrollment periods that allow people to sign up for coverage even if they have health problems. But people who have considered such options often say the prices are out of reach.

While some plans offer coverage for less than $250 a month, people with chronic health problems often are quoted rates exceeding $800.

Seniors face sticker shock

While early retirees and others struggle to bridge the gap until they qualify for Medicare, many seniors say being on Medicare can be a struggle of its own.

Those who pay for supplemental insurance have seen costs go up. And few expect Medicare's drug benefit to be a panacea.

Meanwhile, starting in June, seniors will be able to choose one of more than 40 discount cards that have been offered as a stop-gap measure. Many seniors have been frustrated by the sheer number of choices and the debatable benefits of the discount cards.

Jane Conley, 69, of Eastgate says no program so far has helped her with the costs of her medications.

"It seems like every three months my secondary insurance goes up, but I still have to live on $700 a month from Social Security."

Sue Jones, 67, of Batavia worries about her brother-in-law, a man in his 50s who has been disabled by congestive heart failure. He gets Medicare coverage, but that doesn't pay for his pills.

"He has a hard time paying for rent, for fuel and for his medicines. But if he doesn't take his medicines, he'll die," she says.

Anne Paquette, a 71-year-old resident of Cherry Grove, says the rising costs of health care prove that it's time for a single-payer health care system in America.

"I've seen the medical field go from when everybody could afford a doctor to where you almost have to be rich to afford one."

There aren't any easy answers to America's health-care problems, says Salisbury of the Employee Benefit Research Institute.

Even as employers drop retiree health benefits, taxpayers cannot easily pick up the slack. The Bush administration predicts the Medicare drug benefit will cost $40 billion a year for the next decade, an estimate critics say is too low.

The only practical answer Salisbury sees: Start saving now for the costs of living into your 80s or 90s.

"Our culture does not encourage frugality," Salisbury says. "But there's no replacement for living less richly today so you can live more comfortably tomorrow."


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