Christian Weller: Thank you very much for joining us. I am a senior economist here at the Center for American Progress – we released this report jointly together. I am also a research associate at the Economic Policy Institute. In our view, the report highlights a serious and growing problem for retirees and we hope that this report will ultimately inform the policy discussions over how to improve health insurance coverage for pre-65 and after-65 retirees.
As the report states, we have made retirement a reality for many working families. As Larry stated, affordable health care is part of retirement income security. Older workers in particular have more health care needs, often more costly health care needs, than younger workers. The same holds for retirees. For the vast majority of people, the primary source of health insurance coverage is the employer – either their own employer, their former employer, their current employer, or their spouse's current or former employer.
However, in recent years we have seen a trend that employer's are cutting back on retiree health coverage, either completely eliminating it for their employees or shifting the costs to the beneficiaries. This cut-back comes at a time when costs in the health care sector are rising quite rapidly and, although most of the reports so far have indicated that the changes that the employers are implementing will happen for future retirees, our report actually says that this is a problem that already exists.
In particular, for earlier retirees, those 55 to 64 years of age the shared employee sponsored health insurance has declined 1996-2002. The decline was especially pronounced in this study for men, which reflects the fact that more men work in the manufacturing sector – manufacturing has been declining quite rapidly over the period.
Our report also shows that early retirees, when they lose employer-sponsored health insurance coverage, don't go out in the private insurance market just because the costs are prohibitively high. The coverage for non-group insurance plans actually declined at the same time that the employer-sponsored health insurance coverage declined.
What we find is that the share of early retirees, pre-65 retirees, without health insurance coverage actually grew from 19 percent in 1996 to 21 percent in 2002. That is a substantially higher lack of coverage than for the population as a whole.
But the study also shows that the problem did not stop with the pre-65 retirees, it also continued with Medicare eligible retirees. There we see the employer sponsored health insurance coverage decline in particular for the younger group, the 65 to 74 year old, which we interpret as an indication that this problem will only get worse, not better, in the future.
The important point, however, for the over-65 year old retirees, is to keep in mind that employer sponsored health insurance coverage has gained in relative importance as the price of non-group health insurance in the private market has become prohibitively high. What we find is that that coverage is actually dropping quite dramatically, so that from 36 percent of Medicare eligible retirees having some form of non-group health insurance in addition to Medicare or other public insurance in 1996 dropped to 30 percent in 2002.
The report shows that there are basically two possibilities for retirees, or for people wanting to retire who are faced with a crisis — the lack of access to affordable health insurance. One is to work longer. The other is to retire without health insurance or with inadequate health insurance coverage. I think that can cause real problems for the economy, for employers as more employers will have older workers, often with worse health than previously in their ranks and that can drive the prices up. Again, starting a vicious cycle.
I want to point out that an important aspect of retiree insurance coverage is whether retirees have access to affordable prescription drug coverage. With that, I would like to turn it over to my co-author Elise Gould.
Elise Gould: My name is Elise Gould. I am a health economist at the Economic Policy Institute. Christian has laid out some important issues. Now I want to talk about one specific element of the report – prescription drugs.
Declining drug coverage and rising prescription drug costs have been on the minds of many older Americans. I want to focus on the early retirees, those retiring between 55 and 64 years of age.
Early retirees are less likely to have prescription drug coverage than their peers who are still employed but more likely to have drug coverage than their older cohort retirees. These early retirees are an important group to focus on as any expansions to Medicare will not immediately help cover them.
In 2000, about 70 percent of early retirees had prescription drug coverage. As with insurance for the general population, the likelihood of drug insurance for this group increases significantly with higher education levels and high income levels. In addition, whites are more likely to have drug coverage than any other race or ethnic group.
Between 1996 and 2000, prescription drug coverage for these early retirees fell nearly 10 percentage points. This change in drug coverage was more pronounced for women than men and more for those in poor health than for those in good health. This is just a summary. I would be happy to answer more questions after the presentation.
Jeanne Lambrew: Hello my name is Jeanne Lambrew. I am a senior fellow here at the Center for American Progress, also an Associate Professor at George Washington University. I would like to congratulate the authors on an excellent report and discuss the policy climate that surrounds the issues of retiree health coverage.
What I am going to do is very briefly talk about Medicare drug benefits in general and how they affect retiree health coverage, the specifics of the new Medicare law, what has happened since the Medicare law and this issue of early retirees and what policy might hold for that group.
So to start with, the adoption of any prescription drug benefit would cause some employers to drop coverage for prescription drugs. Prescription drug coverage is a very expensive part of retiree health benefits. The more generous a Medicare benefit is, the more likely that employers can take that item off of their cost sheet.
The reality, however, is that the new law only dedicates about $400 billion over 10 years, or $535 billion according to the Medicare actuaries, to that coverage. Whereas that sounds like a lot, that will only cover about a fourth to maybe 40 percent of the actual costs of Medicare beneficiaries' prescription drug needs. So, it really is only a fraction of what seniors really need to spend on their prescription drugs.
Given that, policy makers have been quite concerned about what this will mean for retiree health coverage because there's going to be some need to continue to maintain that coverage, given the fact that the Medicare drug benefit is not very generous.
So what happened in the final law that was passed last December was that the policy created a new subsidy for employers. Employers will get a subsidy of 28 percent of their costs between $250 and $5,000 to offset their spending on prescription drugs. There are very few rules associated with this and this subsidy that goes to employers can actually be excluded from income. So added together, the direct subsidy and the tax subsidy yield about $88 billion over 10 years that would go to employers that maintain their retiree drug coverage.
The reality is that that dollar amount that goes to employers, however, is not as much as those retirees would get if they were dropped into Medicare and got the full Medicare subsidy. As a result of that, the Congressional Budget Office estimates that about 2.7 million retirees who have drug coverage today would lose it due to this new law.
Since then, we have actually learned of further complications because of how FASB [Financial Accounting Standards Board], the accounting board, is asking for accounting of retiree drug costs – even without knowing what are the rules for getting this sort of subsidy. That may mean that if CBO were to re-estimate it, the number of retirees losing drug coverage due to the new law could be even higher.
So we have this law that really does exacerbate the situation. One other provision of the law that I would like to mention because it relates both to post-65 retiree coverage and the pre-65 retiree coverage, is an issue about age discrimination. In the debate over the Medicare law, one of the quieter issues that the AARP and other groups focused on was whether or not a firm could offer different benefits to those retirees in Medicare versus the early retirees. AARP felt quite strongly that there should be no age discrimination; they should get the same benefits. In fact, there was a provision in one of the bills that would allow that kind of discrimination that AARP got knocked out of the final law. However, on April 22, the EEOC [U.S. Equal Employment Opportunity Commission] ruled that there could be a difference in the benefits that post-65 retirees and pre-65 retirees get. This could accelerate the decline of post-65 retiree coverage, not just for drugs but for all benefits because employers can now offer differential benefits to those seniors over 65 and those below 65.
On the other hand, it could actually help to the extent that firms can actually offer retiree coverage to their pre-65 retirees without doing so for their older, more costly beneficiaries.
The last note on the policy front: talking about these early retirees, the ones not yet eligible for Medicare – there really has been very little policy focus in Washington on this group. There have been policies like the Medicare buy-in, allowing these individuals to buy into Medicare early, that have been around for years but with no real Congressional movement to take them up.
I would like to close by saying that this report really does highlight important trends both in what we can expect for the post-65 retirees, which I think will actually keep this issue of Medicare coverage on the front burner in Congress. It also emphasizes the importance of focusing on this group of people, 55 to 64 years old, who are probably in even more serious trouble.