Economic & Business Focus: Retiree Health Plans at Risk

Recent Medicare legislation may push many companies to cancel prescription drug coverage for their retirees.

The new Medicare prescription drug coverage bill, signed into law in December 2003, is a complicated patchwork of compromises pushed through Congress by the Bush administration. Although the legislation is obtuse and details remain unclear, finance executives must begin to address its potential impact on their retiree health plans and make a series of decisions about their prescription drug provisions.

Employers now provide health coverage for 11.6 million retirees, or about one-third of all Medicare beneficiaries. As health-care costs have spun out of control, many companies have already canceled or severely restricted coverage for retirees, and the new legislation will push more to do so.

The law does little to control the prices pharmaceutical companies charge for drugs, so the cost of employer-provided benefits will continue to rise. The legislation provides a federal subsidy for employers that offer retiree drug benefits, but it may not be sufficient to induce companies to continue their plans.