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SHRM Metric of the Month: Retiree Health Care Prevalence Rate: Will it falter due to the failing economy?
 

   3/1/2009

A retiree health care plan provides funding to retirees for health care benefits and prescription drug coverage. This plan is established by an employer to provide continued health care coverage to the employee even after retirement. Unlike pension plans, retiree health benefits do not have government protection, making it easier for organizations to rescind their current and future retiree health coverage. The following percentage represents those organizations that provide a retiree health care plan:

Organization Offers Retiree Health Care

             -------------------  X 100            

Total Number of Organizations

According to SHRM’s 2008 Retirement & Welfare Benchmarking Database, only 10% of organizations with fewer than 250 full-time equivalent employees (FTE) offered retiree health care plans, whereas among organizations with more than 1,000 FTEs, 34% offered this benefit.1 Because funding retiree health care benefits is expensive, the reason behind the difference in prevalence rates between small and large organizations is greater revenue and profits to afford this benefit in large organizations. In addition, organizations with 1,000+ FTEs are more than four times as likely to have a union as organizations with fewer than 250 employees (13% and 3%, respectively).2 Because unions have greater bargaining power to negotiate for greater pay and benefits than nonunion environments, retiree health care benefits may be more prevalent in large organizations. Since business and environmental forces differ by industry and organization, HR professionals may want to tailor their plans based upon both employer and employee needs. It may be helpful for HR professionals to use hard data about retiree health care prevalence in similar companies to justify what, if any, retiree health care plan should be offered to employees. 

Governmental efforts to incent employers to offer retiree health care benefits are on the rise. Specifically, with the Medicare Modernization Act of 2003, the government pays a prescription drug subsidy to incentivize organizations who offer the actuarial equivalent of what Medicare offers.3 However, the current economic climate may derail these efforts. In recent years, the number of organizations offering retiree health care has decreased, and as economic challenges continue, further decreases may occur. The main reason organizations have been cutting retiree health care plans is the associated costs. Retirees have the highest health care utilization rates, and thus an estimated 25% of the total costs of active workers, retirees and dependents are attributed to retirees.4 Recently, retiree health care costs have come under scrutiny from automakers as they look to trim these and other legacy costs in order to become profitable. Other key factors also determine whether employers offer retiree health care plans, including competitive pressures, early retirement patterns and the government’s role in health care. With the median age of employees predicted to be 39.7 years in 2010,5 most active employees are not approaching retirement, and therefore maintaining retiree health care service is not a strong tool for recruitment or retention.6

To better predict and manage workers’ exit from the workforce and entrance into retirement, employers need to take a widespread look at their benefits and retirement packages. For additional benchmarking data and to learn how the SHRM Customized Benchmarking Service can take your HR department to the next level, please visit our web site at www.shrm.org/research/benchmarks/ or call 1-800-283-7476 ext. 6366.

Endnotes

[1] SHRM’s 2008 Retirement & Welfare Benchmarking Database [unpublished database].

2 Ibid.

3 Medicare Prescription Drug, Improvement, and Modernization Act of 2003; Public Law 108-173.

4 Kaiser Family Foundation. (2004). Retiree health benefits now and in the future. Retrieved from www.kff.org/medicare/011404package.cfm. 

5 U.S. Census Bureau. (2000). Median age of total and working age. Retrieved from www.census.gov/ip c/prod/ipc95-2/ipc95_2g.pdf .

6 Miller, S. (2007, April). Retiree health care: Many employers trim their sails but stay the course. Retrieved from www.shrm.org/hrdisciplines/benefits/Articles/Pages/CMS_021016.aspx.

Project Team

Project Leader: Kelsey Logan, Strategic Research

Project Contributors: Andrew Mariotti, strategic research analyst; John Dooney, manager, Strategic Research; Steve Williams, Ph.D., SPHR, director, Research

Editor: Nicole Gray, copy editor

Disclaimer

This article is published by the Society for Human Resource Management (SHRM). All content is for informational purposes only and is not to be construed as a guaranteed outcome. The Society for Human Resource Management cannot accept responsibility for any errors or omissions or any liability resulting from the use or misuse of any such information.

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