Most large companies plan to keep offering prescription coverage to their retirees after Medicare's new drug benefit takes effect in 2006, according to a national employer survey...

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WASHINGTON — Most large companies plan to keep offering prescription coverage to their retirees after Medicare’s new drug benefit takes effect in 2006, according to a national employer survey released yesterday.

The findings by the nonprofit Henry J. Kaiser Family Foundation and the consulting firm of Hewitt Associates eased some fears that employers would rush to drop their drug benefits for retirees once the government started paying for outpatient prescriptions.

However, the survey of 333 large companies — defined as having 1,000 or more employees — also found that employer health coverage for retirees continues to decline under the pressure of rising costs, as most companies pass on a greater share of expenses to their retirees and some contemplate terminating retirement health benefits for current workers.

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The share of medium and large companies that offer retiree health benefits has fallen from 66 percent in 1988 to 36 percent this year.

“Retiree health-care coverage is kind of a slowly vanishing species,” Kaiser President Drew Altman said.

During 2004, retirees paid an average of about 25 percent more in premiums than they did last year, marking the third consecutive year of double-digit increases, said Tricia Neuman, director of Kaiser’s Medicare project. Eighty-five percent of companies said they expected to keep increasing retiree contributions for health benefits.

The total cost of providing health benefits to retirees rose by nearly 13 percent this year, with employers picking up about three-fifths of the bill.

The survey also found that 8 percent of companies ended their subsidized benefits for future retirees in the last year, and an additional 11 percent said they were considering such a move.

Frank McArdle, head of Hewitt’s research office in Washington, said companies appeared to be trying to preserve some level of benefits for those who are already retired. But they are increasingly pulling back from making a similar commitment to future retirees.

“Current retirees are going to be pretty well protected,” McArdle said. “It’s the younger generations that are going to have to figure out another way to do it.”

The prospect of losing health coverage in retirement is troubling particularly to people who are considering changing jobs or who want to retire between the ages of 55 and 64. Younger retirees can find it difficult to afford health insurance when they can’t get it from their employers.

Medicare, the government health program for older and disabled Americans, kicks in at age 65. Its benefits typically have been less generous than those offered by employers, mainly because the workplace plans cover prescription drugs. Medicare’s drug insurance program begins in 2006.

While companies appeared to be holding fast to their commitments to current retirees, Altman said it was too early to tell what would happen after the Medicare prescription benefit had been available for a few years.

“I wouldn’t take any conclusion to the bank until we have a few years of experience with it,” he said.

About 12 million Medicare beneficiaries receive retiree health benefits through a private employer. The extra benefits have been valuable, since Medicare has significant coverage gaps.

Though Medicare will begin subsidizing outpatient prescriptions in 2006, the government plan will still have holes in it.

Under the new Medicare drug benefit, retirees will pay the first $250 in prescription costs each year. The government will then pay 75 percent of the next $2,000.

But beneficiaries are responsible for all costs between $2,250 and $5,100 — a coverage gap of $2,850 that has been dubbed “the doughnut hole.” After a beneficiary has spent $5,100, Medicare will pick up 95 percent of further drug costs.

An earlier Kaiser study estimated that 7 million beneficiaries would spend enough to reach the coverage gap. Overall, however, about three-fourths of beneficiaries would pay less or about the same as they now do for prescriptions, and the poor would pay significantly less.