Health-care coverage for retirees tends to be more expensive because they are older and tend to use more medical services, particularly prescription drugs, analysts say. Most stay on employer-sponsored retiree plans until they are 65 when Medicare coverage kicks in and they will then need only an employer-sponsored supplemental policy, which typically includes drug coverage.
But such supplemental policies are going up, too often double and triple what retirees have been used to for much of the last decade.
Ralph Kolderup, a retired regional sales manager for the former Ameritech, now SBC Communications, said supplemental coverage cost just $2 a month three years ago. This year, he paid $133 a month and his premium will rise to $224 a month next year.
"To go from zero to more than $2,500 a year is fine if you are working and get annual raises and maybe a performance bonus. But when you are retired, what the hell are you going to do?" said Kolderup, 65, of Palatine, Ill.
"Your income levels are stable unless you want to go back to work when you are 65. Most of us know health-care costs are spiraling out of control in this country but this raises a question. What is going on?"
SBC is like an increasing number of companies being forced to raise premiums on retirees because of corporate budgeting maneuvers implemented several years ago that set a cap on future retiree obligations.
In SBC's case, the company created such a cap in the early 1990s and told workers they some day faced the possibility of paying a portion of their medical premiums if they rose above the cap. The cap kicked in last year, triggering large increases in retiree contributions.
Because of the dramatic increase in health-care costs over the years, the caps are starting to kick in at companies across the country. About half of all employers offering retiree medical benefits report having such caps, according to a study by the Henry J. Kaiser Family Foundation and benefits firm Hewitt Associates.
"Ten years ago, a lot of companies reduced their liability by putting in caps, and that future deferral is now hitting retirees," said Todd Swim, benefits consultant with the Chicago office of Mercer Human Resources Consulting. "The only way companies can manage that liability without drowning is to institute these caps."
In the future, retiree medical benefits may not even be around for current employees given the current trend, analysts say.
Already, one in five large employers say they are going to eliminate retiree coverage for "future retirees," typically new or recent hires, within the next three years, the Kaiser-Hewitt analysis indicates.