Retiree Health Insurance

Health insurance coverage for retirees paid by former employers is steadily declining; some employers have stopped offering such coverage and others have raised the premiums paid by retirees. Lack of private insurance afflicts both early retirees and those who rely on it to fill gaps in Medicare and looms as a major issue for baby-boomers nearing retirement. This report reviews (1) private sector and government surveys of changes in retiree access to and participation in employer-based health coverage; (2) the health benefit plan in effect at the Pabst Brewing Company during 1996 (last year, Pabst notified about 750 retirees of its Milwaukee plant that it planned to terminate their health benefits within a month); (3) data from health insurance carriers on the cost of alternative sources of coverage for early retirees in Wisconsin, where Pabst is located, and other selected states; (4) applicable federal and state laws and legal precedents; and (5) earlier GAO work.

GAO noted that: (1) the available data on employer-based retiree health benefits paints a limited but consistent picture of eroding coverage; (2) the data, primarily from employer or retiree surveys, demonstrate a steady decline in the number of retirees with coverage through a former employer--both for early retirees and those who are Medicare eligible; (3) earlier employer survey data suggest that since 1988 the decline in the number of large employers who offer retiree coverage has been significant; (4) it is important to point out that the decline in the availability of employer-based coverage has not resulted in as large an increase in early retirees without private health insurance; (5) among the reasons are that: (a) the decision to retire is often predicated on the availability of health coverage; and (b) access to other sources of private coverage appear to be filling a significant portion of the gap created by fewer employers offering retiree health benefits; (6) retiree surveys provide another important perspective on the erosion in retiree health coverage; (7) comparing 1988 and 1994 data for all retirees aged 55 and older, the Labor Department reported that the number of individuals who continued to receive employer-based health benefits into retirement declined by 8 percentage points; in addition, the number still covered sometime after retirement dropped by 10 percentage points; (8) losing access to employer-based coverage poses three major challenges for retirees: (a) higher costs in purchasing individual coverage on their own; (b) a related problem, the potential for less comprehensive coverage because of higher premiums; and (c) until recently, the possibility that coverage will be denied or restricted by a preexisting medical condition; (9) the impact of the termination of health benefits on retirees varies from state to state, depending on the nature of state laws governing the purchase of insurance by individuals; (10) a key characteristic of America's voluntary, employer-based system of health insurance is an employer's freedom to modify the conditions of coverage or to terminate benefits; (11) while federal law requires that the terms of an employee's health benefits be in writing, the intent was not to prevent an employer from changing or terminating those benefits for either active workers or retirees; (12) in cases involving the termination of health benefits by an employer, federal courts have turned to the nature of the written agreements and extrinsic evidence covering the provision of retiree benefits; and (13) in essence, the issues before the court often come down to a matter of contract interpretation.