Some Rare Good News: Retiree Health Savings Needs Slip

Projections for how much elderly Americans need to save for out-of-pocket health care in retirement have edged lower, due to a provision the federal health reform law that will cover more of their prescription drug costs, according to a new report by EBRI.

The Patient Protection and Affordable Care Act (PPACA) reduces cost sharing in the Medicare Part D “donut hole” to 25 percent by 2020. This year-to-year reduction in coinsurance will continue to reduce savings needed for health care expenses in retirement, all else equal, for individuals with the highest prescription drug use, EBRI reports.

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA) added outpatient prescription drugs (Part D) as an optional benefit. When the program was originally enacted, it included a controversial feature: a coverage gap, more commonly known as the “donut hole.” PPACA included provisions to reduce (but not eliminate) this coverage gap.

Medicare generally covers only about 60 percent of the cost of health care services (not including long-term care) for Medicare beneficiaries ages 65 and older, while out-of-pocket spending accounts for 13 percent (see figure, below).

The EBRI analysis finds 1–2 percent reductions in needed savings among individuals with median (mid-point, half above and half below) drug use and 4–5 percent reductions in needed savings among individuals at the 90th percentile in drug use since its last analysis in 2011.

The full report, “Savings Needed for Health Expenses for People Eligible for Medicare: Some Rare Good News,” is published in the October EBRI Notes, online at www.ebri.org

The press release is online here.

Workers Aging Into Retiree Health Changes

A growing number of workers are realizing they will not get retiree health care from their employer after they stop working, according to a new report by EBRI.

While earlier research found little impact from reductions in coverage on current retirees, EBRI finds that initial changes employers made to retiree health benefits affected future retirees as opposed to then-current retirees. Over time, more and more retirees have “aged into” those program changes, resulting in the greater impact found in more recent studies.

Paul Fronstin, head of health benefits research at EBRI, and co-author of the report, noted that for many years, despite the downward trend in retiree health coverage, many workers still thought they would receive the benefit.

“The data show that workers are still more likely to expect retiree health benefits than retirees are actually likely to have those benefits, but the expectations gap is closing,” Fronstin said. “By 2010, 32 percent of workers expected retiree health benefits, while only 25 percent of early retirees and 16 percent of Medicare-eligible retirees had them.”

The EBRI report, providing current data on trends in retiree health coverage, finds that while many employers no longer offer retiree health benefits, most that have continued to do so have made changes in the benefit package they offer: raising premiums that retirees are required to pay, tightening eligibility, limiting or reducing benefits, or some combination of these.

The full report, “Employment-Based Retiree Health Benefits: Trends in Access and Coverage, 1997‒2010,” is published in the October EBRI Issue Brief, online at www.ebri.org   The press release is online here. The full report is online here.

“Wishful” Thinking?

By Nevin Adams, EBRI

Last week the Wall Street Journal reported that Sears and Darden Restaurants were planning a “radical change in the way they provide health benefits to their workers,” giving employees a fixed sum of money and allowing them to choose their medical coverage and insurer from an online marketplace, or exchange1. “It’s a fundamental change,” EBRI’s director of health research, Paul Fronstin, noted in the WSJ article.

Indeed, this is the time of year when many American workers – and, by extension, most Americans – will find out the particulars of their health insurance coverage for the following year. For most, the changes are likely to be modest. And, based on the 2012 Health Confidence Survey (HCS), not only do most Americans seem to be confident in those future prospects, they would seem to be satisfied with that outcome.

More than half of those with health insurance are extremely or very satisfied with their current plans, and a third are somewhat satisfied. Nearly three-quarters say they are satisfied with the health benefits they receive now, compared with just 56 percent in 2004.

Dissatisfaction, such as there is to be found, appears to be focused primarily on cost; just 22 percent are extremely or very satisfied with the cost of their health insurance plans, and even fewer are satisfied with the costs of health care services not covered by insurance. Perhaps not surprisingly, about one-half (52 percent) of Americans with health insurance coverage report having experienced an increase in health care costs3 in the past year, though that was the lowest rate since this question was added to the survey in 2006.

The HCS found that confidence about various aspects of today’s health care system has remained fairly stable2 – and undiminished either by the passage of, or the recent Supreme Court decision on, the Patient Protection and Affordable Care Act (PPACA); more than one-half (56 percent) of respondents report being extremely or very confident that they are able to get the treatments they need, and another quarter (27 percent) report being somewhat confident. Only 16 percent of 2012 HCS respondents said they were “not too” or “not at all” confident that their employer/union would continue to offer health insurance for workers – though that was more than twice as many as expressed that level of concern in 2000.

While respondents were generally supportive of the measures broadening access and/or choice in the PPACA, nearly two-thirds said they hadn’t yet noticed any changes to their health insurance – and among the 31 percent that had, 70 percent said the changes were negative, including impacts such as higher premiums, higher copays, and reduced coverage of services.

Despite a falloff from previous surveys, more than two-thirds (69 percent) of employed workers said that benefits were “very important” in their employment decision, with health insurance topping the list of those important benefits by an enormous margin. Nearly six out of 10 said that health insurance was the most important employee benefit, as has been the case for some time now.

All of which reinforces that, while many see room for improvement in the current system, those that have employment-based health insurance now like it, and want to keep it.

It will be interesting to see if, in the months and years ahead, they get that wish.

Notes

More information from the 2012 Health Confidence Survey (HCS) is online here.  The HCS is sponsored by EBRI and Mathew Greenwald & Associates, Inc., a Washington, DC-based market research firm, and made possible by the generous support of the HCS underwriters, listed here.

 1 More information about private health insurance exchanges is available in the July 2012 EBRI Issue Brief “Private Health Insurance Exchanges and Defined Contribution Health Plans: Is It Déjà Vu All Over Again?” 

 2Asked to rate the health care system, survey respondents offered a diverse perspective: 17 percent rated it either “very good” or “excellent,” 28 percent consider it to be “good,” 28 percent say “fair,” and 26 percent rate it “poor.” However, the percentage of Americans rating the health care system as poor doubled between 1998 and 2004 (rising from 15 percent to 30 percent).

 3Of more than passing concern is the finding that among those experiencing cost increases in their plans in the past year, nearly a third had decreased their contributions to retirement plans, while more than half have decreased their contributions to other savings as a result.