Attitudes hardening towards retiree health costs

May 03 2007 by Nic Paton Print This Article

The cost of funding their retirees' health coverage is putting American employers under increasing financial pressure, leading many to call for people who smoke, have poor diet or don't take enough exercise to pay more.

While many large employers continue to offer their retired workers access to health insurance, a new study by PricewaterhouseCoopers of more than 100 firms has found that spiralling costs are beginning to bite hard into companies' bottom lines.

Amid this growing financial pressure, nearly two-thirds of those polled agreed that employees with unhealthy lifestyles should pay more for their health insurance coverage, significantly up from the 48 per cent polled in 2005.

Three quarters also agreed that companies should provide access to affordable retiree health coverage, but not necessarily fund it.

And eight out of ten thought should be more tax incentives for employees to set aside money to fund their retirement healthcare needs.

"We are seeing a constant movement of employers getting out of the retiree medical space," said Barry Barnett, principal in PricewaterhouseCoopers' global human resource solutions group.

"Yet they feel an obligation to their employees even in retirement and are seeking ways to provide them with access to affordable coverage.

"In addition, they are encouraging current employees to invest now in the future in two ways: by making health lifestyle changes and by making sound financial decisions to prepare for their health coverage in retirement," he added.

When asked whether employers should move away from providing healthcare coverage for current employees, the vast majority 87 per cent disagreed, illustrating strong continued support for employer-sponsored healthcare.

"Healthcare coverage is becoming a precious commodity in our society, whereas it was once taken for granted," said Barnett.

"In an economy with under 5 per cent unemployment, employers recognise that their health plan is a differentiating factor in their ability to attract talent. They want to design competitive benefits plans that employees want, but, in turn, they want employees to work for the benefits," he added.

Though employers previously had been reluctant to get involved in employees' personal healthcare matters because of privacy and non-discrimination laws, that was beginning to change, according to PwC.

An increasing number of employers were cautiously designing plans that deterred unhealthy behaviour by charging higher premiums.

Eight out of ten employers surveyed said they believed that providing financial incentives for employees taking part in healthy lifestyle programmes could reduce their healthcare costs.