Retiree Health Benefits: Employer-Sponsored Benefits May Be	 
Vulnerable to Further Erosion (01-MAY-01, GAO-01-374).		 
								 
In 1999, nearly 10 million retired people aged 55 or older relied
on employer-sponsored health insurance as either their primary	 
source of coverage or as a supplement to their Medicare coverage.
Some of these persons are concerned about the continued 	 
availability of employer-sponsored coverage. Premium increases	 
and forecasts for a potential economic slowdown could further	 
erode employer-sponsored benefits. In the long term, these	 
factors, coupled with the potential for Medicare reforms and the 
rising number of aging baby boomers, may produce even more	 
uncertainty and cost pressures for employers. Consequently, as an
increasing number of retirees lack employer-based coverage, those
in poorer health may have difficulty finding affordable 	 
alternative health coverage.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-01-374 					        
    ACCNO:   A00946						        
  TITLE:     Retiree Health Benefits: Employer-Sponsored Benefits May 
             Be Vulnerable to Further Erosion                                 
     DATE:   05/01/2001 
  SUBJECT:   Health insurance					 
	     Insurance premiums 				 
	     Prices and pricing 				 
	     Employee medical benefits				 
	     Health insurance cost control			 
	     Retirement benefits				 
	     Employee retirement plans				 
	     Medicare Program					 
	     Medicare Supplemental Medical Insurance		 
	     Program						 
								 
	     Medicare Choice Program				 
	     Medigap						 

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GAO-01-374
     
GAO- 01- 374

Report to the Chairman, Committee on Health, Education, Labor, and Pensions,
U. S. Senate

United States General Accounting Office

GAO

May 2001 RETIREE HEALTH BENEFITS Employer- Sponsored Benefits May Be
Vulnerable to Further Erosion

Page i GAO- 01- 374 Retiree Health Benefits Letter 1

Appendix I Methodology 26

Appendix II Case Law Review of Changes to Employer- Sponsored Retiree Health
Benefits 30

Appendix III Benefit Summaries for Selected Medigap Policies 36

Appendix IV GAO Contact and Staff Acknowledgments 37

Related GAO Products 38

Tables

Table 1: Percentage of Elderly and Near- Elderly Individuals Reporting Fair
or Poor Health Status by Employment Status, 1999 20 Table 2: Examples of
Differences in Premiums for a 30- Year- Old

and a 60- Year- Old Male 21 Table 3: Examples of Specific Health Conditions
for Which Carriers

May Decline Coverage or Exclude From Coverage 22 Table 4: Sample Monthly
Premiums for a 65- Year- Old for Three

Medigap Plans in Four Areas 24 Table 5: 2000 Kaiser/ HRET Sample by Firm
Size 27 Table 6: Additional Medigap Benefits for Plans C, F, and H 36

Figures

Figure 1: Surveys Report That Employer- Sponsored Retiree Health Benefits
Have Remained the Same or Declined Slightly Since 1997 for Large Firms 7
Figure 2: Percentage of Retirees With Employer- Sponsored Health

Benefits Has Remained Relatively Stable 9 Contents

Page ii GAO- 01- 374 Retiree Health Benefits

Figure 3: Health Insurance Premium Increases Resume After a Decline in the
Mid- 1990s 13 Figure 4: Baby Boom Generation Will Greatly Increase the
Elderly

and Near- Elderly Population 18

Abbreviations

ADEA Age Discrimination in Employment Act COBRA Consolidated Omnibus Budget
Reconciliation Act CPS Current Population Survey ERISA Employee Retirement
Income Security Act of 1974 FAS Financial Accounting Standards HIPAA Health
Insurance Portability and Accountability Act of 1996 HMO health maintenance
organization Kaiser/ HRET Kaiser Family Foundation and Health Research and

Educational Trust PPO preferred provider organization SPD summary plan
description

Page 1 GAO- 01- 374 Retiree Health Benefits

May 1, 2001 The Honorable James M. Jeffords Chairman, Committee on Health,

Education, Labor, and Pensions United States Senate

Dear Mr. Chairman: In 1999, about 10 million retired people aged 55 and over
relied on employer- sponsored health insurance as either their primary
source of coverage or a supplement to their Medicare coverage. 1 For some of
these individuals, however, concerns exist that the continued availability
of employer- sponsored coverage may be uncertain. As we reported in 1998,
the percentage of employers offering retiree coverage to early retirees-
those aged 55 to 64- had dropped from about 70 percent in the 1980s to about
40 percent in 1997. 2

Concerned about declining employer- sponsored health coverage for early
retirees and Medicare- eligible (age 65 and over) retirees, you asked us to
examine if this trend is continuing. In particular, you asked that we
examine

 changes employers have made to the availability and terms of their health
insurance plans with respect to retiree coverage;  how factors such as
economic conditions, Medicare changes, and

demographic trends may influence employers? future provision of retiree
health benefits; and  the ability of retirees without employer- sponsored
coverage to obtain

alternative coverage. To answer these questions, we reviewed available
employer survey data; analyzed the March supplements of the 1995 to 2000
Current Population

1 In this report, ?employer- sponsored? is used to refer to any employment-
based group health coverage, including health plans offered under
collectively bargained agreements and multiple employer associations.

2 Private Health Insurance: Declining Employer Coverage May Affect Access
for 55- to 64- Year- Olds (GAO/ HEHS- 98- 133, June 1, 1998). A list of
related GAO products is included at the end of this report.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 01- 374 Retiree Health Benefits

Survey; reviewed applicable laws and court decisions pertaining to changes
in employer- sponsored coverage; obtained individual insurance market
premiums from insurers and health plans; and interviewed employee benefits
consulting firms and several large employers. Appendix I provides additional
information on our methodology. We conducted our work from June 2000 through
February 2001 in accordance with generally accepted government auditing
standards.

Despite a sustained strong economy and several years of relatively low rates
of increase in health insurance premiums, the decline in the availability of
employer- sponsored retiree health benefits has not reversed since 1997- the
last year for which we had reported previously- and several indicators
suggest that there may be further erosion in these benefits. Employer
benefit consultants we contacted generally indicated that retiree health
benefits were continuing to decline. Two widely cited employer benefit
surveys, however, provide conflicting data as to whether the proportion of
employers sponsoring retiree health insurance remained stable or declined
slightly from 1997 through 2000. In some cases, employers provide retiree
health benefits to current retirees or long- term employees, but newly hired
employees are not eligible. To date, however, the percentage of retirees
with employer- sponsored coverage has remained relatively stable over the
past several years, with about 37 percent of early retirees and 26 percent
of Medicare- eligible retirees receiving retiree health coverage from a
former employer. This stability may also be linked to employers? tendency to
reduce coverage for future rather than current retirees. In some cases,
employers that continue to offer retiree health benefits have reduced the
terms of these benefits by increasing the share of premiums that retirees
pay for health benefits, increasing copayments and deductibles, or capping
the employers? expenditures for coverage.

Several current and developing market, legal, and demographic factors may
contribute to a further decline in employer- sponsored retiree health
benefits. These factors include

 a resumption of health insurance premiums rising at a rate faster than
general inflation;

 a slowdown in economic growth and potential softening of the labor market;

 proposed changes in Medicare coverage, such as adding a new prescription
drug benefit, that could affect the costs and design of employers?
supplemental health benefits for Medicare- eligible retirees; Results in
Brief

Page 3 GAO- 01- 374 Retiree Health Benefits

 a recent circuit court ruling allowing claims of violations of federal age
discrimination law when employers make distinctions in health benefits they
offer retirees on the basis of Medicare eligibility; and

 the movement of the baby boom generation into retirement age, leading some
employers to have a growing number of retirees relative to active workers.

Retirees whose former employers reduce or eliminate health benefits often
face limited or unaffordable alternatives to obtaining coverage. Retirees
may purchase coverage on their own- either individual insurance policies for
those under 65 or Medicare supplemental plans for those 65 or older.
However, despite federal laws that guarantee access to some individual
insurance policies to certain individuals who lose group coverage, retirees?
ages and often poorer health status combine to make individually purchased
health insurance expensive. For example, the majority of states do not
restrict the price of premiums carriers may charge individuals who purchase
individual insurance policies. Thus, carriers in these states may charge 60-
year- old males a monthly premium close to 4 times higher than what they
charge 30- year- old males, and there may be an even bigger difference if
the older individual is not healthy. Similarly, the number of Medicare
supplemental plans that federal law guarantees to retirees over 65 whose
employers eliminate coverage is limited, and they do not include coverage
for benefits such as prescription drugs. Thus, retirees seeking alternative
coverage could receive less comprehensive coverage and pay more for it than
they had previously.

Since World War II, many employers have voluntarily sponsored health
insurance as a benefit to employees for purposes of recruitment and
retention, and some have also offered these benefits to their retirees. The
federal tax code provides incentives for employers to subsidize health
benefits because their contributions can be deducted as a business expense
from their taxes, and these contributions are also not considered taxable
income for employees. Employer- sponsored health benefits are regulated
under the Employee Retirement Income Security Act of 1974 (ERISA), 3 which
gives employers considerable flexibility to manage the cost, design, and
extent of health care benefits they provide. However, ERISA established
certain requirements for employers, including that they provide health plan
participants and beneficiaries with a summary plan

3 29 U. S. C. 1001. Background

Page 4 GAO- 01- 374 Retiree Health Benefits

description (SPD) specifying the retirees? rights and circumstances under
which the health plan can be modified or terminated. 4

Concern over the costs associated with retiree health benefits was
compounded in 1993 when the Financial Accounting Standards (FAS) Board
adopted FAS 106, requiring employers to report annually on the liability
represented by the promise to provide retiree health benefits to current and
future retirees. While FAS 106 did not affect an employer?s cash flow, there
has been concern that listing this future liability could affect companies?
stock prices because the reporting of projected retiree health care costs
affects the overall statement of financial profitability. Some companies
have said that FAS 106 requirements lead to reductions in reported income
and shareholder equity and are a reason for reducing retiree health
benefits. As a means of reducing their reported liability as well as
controlling rising costs associated with retiree health benefits, some
employers have passed a share of cost increases to their retirees in the
form of higher premiums, deductibles, or copayments. Some other employers
have reduced benefits or simply ceased to sponsor coverage.

In the absence of employer- sponsored retiree health benefits, retirees have
certain coverage alternatives, but may find them to be expensive or even
unaffordable. Individuals under 65 may rely on the individual insurance
market or may, in limited instances, be eligible for continuation coverage
from a former employer. For example, individuals whose jobs provided health
benefits that ended at retirement may continue temporary coverage for up to
18 months under provisions of the Consolidated Omnibus Budget Reconciliation
Act of 1985 (COBRA). 5 For eligible individuals who exhaust available COBRA
coverage, the Health Insurance Portability and Accountability Act of 1996
(HIPAA) guarantees access to the individual market, regardless of health
status and without coverage exclusions, but

4 Other requirements on employers include having a process for appealing
claim denials, making available temporary continuation coverage for former
employees and dependents, and meeting specific fiduciary obligations. For
more information on ERISA?s applicability to employer- sponsored health
benefits see Employer- Based Health Plans: Issues, Trends, and Challenges
Posed by ERISA (GAO/ HEHS- 95- 167, July 25, 1995).

5 29 U. S. C. 1161- 1169 and 26 U. S. C. 4980B. COBRA coverage may entail
substantial out- ofpocket costs because the employer is not required to pay
any of the premium and may charge the enrollee up to 102 percent of the
group rate. COBRA coverage can be extended an additional 11 months for most
individuals who qualify for disability under the Social Security Act;
however, they may be charged up to 150 percent of the group rate. COBRA
coverage is not required for employers with fewer than 20 employees.

Page 5 GAO- 01- 374 Retiree Health Benefits

does not restrict the premiums that may be charged to older or less healthy
individuals. 6

For retirees 65 years or older, Medicare is typically the primary source of
health insurance coverage. Under traditional Medicare, eligible individuals
may apply for Part A, which helps pay for care in hospitals and some limited
skilled nursing facility, hospice, and home health care, and may purchase
Part B, which helps pay for doctors, outpatient hospital care, and other
similar services. Medicare beneficiaries may rely on private retiree health
coverage from a former employer or union or individually purchased Medicare
supplemental insurance (known as Medigap) to cover some or all of the costs
not covered by Medicare, such as copayments, coinsurance, deductibles, and
most outpatient prescription drug costs. 7 Depending on where they live,
individuals may have the option of obtaining Medicare coverage on a fee-
for- service basis or from a managed care or other private plan offered
through the Medicare+ Choice program since 1998. 8 Many beneficiaries have
been attracted to these plans because they typically have lower out- of-
pocket costs than fee- for- service plans and offer services not covered by
traditional Medicare, such as routine

6 29 U. S. C. 1181- 1191, 26 U. S. C. 9801- 9803. HIPAA provides eligible
individuals with groupto- individual portability; that is, eligible
individuals losing group coverage have access to at least two individual
insurance products. An eligible individual is one who has had at least 18
months of creditable coverage with no break of more than 63 consecutive
days; has exhausted any COBRA or other continuation coverage available under
a similar state program; is not eligible for any other group coverage,
Medicare, or Medicaid; and did not lose group coverage because of nonpayment
of premiums by the individual or fraud.

7 The Medicare Current Beneficiary Survey found that in 1996 approximately
32 percent of traditional Medicare beneficiaries obtain their supplemental
coverage as a retirement benefit from a former employer or union, 30 percent
individually purchase Medigap coverage, and 4 percent have both an employer-
sponsored and an individually purchased supplemental plan. Another 20
percent of traditional Medicare beneficiaries also qualify for Medicaid or
other health coverage to supplement Medicare, and 13 percent have Medicare
only.

8 In the Balanced Budget Act of 1997 (P. L. 105- 33, Aug. 5, 1997), Congress
established the Medicare+ Choice program to expand Medicare beneficiaries?
health plan options and encourage wider availability of health maintenance
organizations and other types of health plans, such as preferred provider
organizations, as an alternative to traditional fee- forservice Medicare.
Prior to 1998, Medicare managed care plans that were paid a fixed amount per
enrollee were known as risk plans. Risk plans, along with new types of plans
authorized by the Balanced Budget Act of 1997, are now known as Medicare+
Choice plans. We previously reported that about 30 percent of Medicare
beneficiaries- particularly those in rural areas- did not have a Medicare+
Choice plan available in their location. See Medicare+ Choice: Plan
Withdrawals Indicate Difficulty of Providing Choice While Achieving Savings
(GAO/ HEHS- 00- 183, Sept. 7, 2000).

Page 6 GAO- 01- 374 Retiree Health Benefits

physical exams and prescription drugs. Nearly 6 million people, or
approximately 15 percent of Medicare?s 39 million beneficiaries, were
enrolled in a Medicare+ Choice plan as of January 1, 2001, with recent plan
withdrawals causing some beneficiaries to return to the traditional Medicare
program.

Despite a strong economy and relatively small premium increases during the
latter part of the 1990s, available evidence from employer benefit surveys
and employer benefit consultants we interviewed suggests the decline in
employer- sponsored retiree health insurance has not reversed since 1997-
the last year for which we had reported previously. Two widely cited
employer benefit surveys estimate that just over one- third of large
employers, and a smaller portion of small employers, offered health coverage
to some of their retirees in 2000; however, one of these surveys shows the
proportion of large employers offering coverage is the same as in 1997,
whereas the other indicates a further small decline in coverage since 1997.
Other data indicate that the percentage of retirees with employer- sponsored
health insurance remained relatively stable during this time period. Still,
many employers continuing to offer coverage have reduced the terms of
coverage by tightening eligibility requirements, increasing the share of
premiums retirees pay for health benefits, or increasing copayments and
deductibles- thus, contributing to a gradual erosion of benefits.

Employer sponsorship of retiree health benefits in 2000 was, at best, the
same as in 1997 or, worse, continued to gradually erode according to two
surveys. Surveys conducted by William M. Mercer, Incorporated, indicate that
the portion of firms sponsoring health insurance for early retirees fell
slightly from 41 percent in 1997 to 36 percent in 2000. Similarly, employer
sponsorship of health benefits for Medicare- eligible retirees fell from 35
to 29 percent during this period. As shown in figure 1, this continues a
gradual decline that began in the early 1990s. A second survey- conducted by
the Kaiser Family Foundation and Health Research and Educational Trust
(Kaiser/ HRET)- estimates that about 37 percent of large employers sponsored
retiree health benefits in 2000 9 -the same percentage as in 1997, although
with some year- to- year fluctuation. Like the Mercer survey,

9 For those firms sponsoring retiree health benefits, 92 percent did so for
early retirees, and 67 percent for Medicare- eligible retirees. The Decline
in

Employer Sponsorship of Retiree Health Benefits Has Not Reversed Since 1997

Surveys Conflict as to Whether Employers? Offerings of Retiree Health
Benefits Were the Same or Declined Slightly Since 1997

Page 7 GAO- 01- 374 Retiree Health Benefits

the Kaiser/ HRET survey reflects a significant decline in coverage since
1991.

Year- to- year fluctuations or gradual changes in these surveys? results
need to be interpreted with caution. These surveys are widely used and based
on random samples designed to be representative of a broader employer
population, but neither may have the precision needed to distinguish small
changes in coverage from year to year because of the response rates and the
number of firms surveyed. For example, only about 45 percent of the 1,887
firms in the Kaiser/ HRET sample responded to the survey in 2000. Similarly,
about 50 percent of the sampled firms responded to the Mercer

Figure 1: Surveys Report That Employer- Sponsored Retiree Health Benefits
Have Remained the Same or Declined Slightly Since 1997 for Large Firms

a The narrow dashed lines between 1993 and 1997 for the Kaiser/ HRET survey
(at that time conducted by KPMG Peat Marwick) indicate that the survey did
not report on employer sponsorship of retiree health benefits in 1994 and
1996.

Note: The Mercer data represent retiree health benefits offered by employers
with at least 500 employees, whereas the Kaiser/ HRET data represent
employers with at least 200 employees. Until 1997, Foster Higgins, which
merged at that time with William M. Mercer, Incorporated, conducted the
Mercer survey.

The vertical line at 1997 indicates the year for which we had last reported.
Sources: William M. Mercer, Incorporated, and Foster Higgins employer
benefit surveys from 1994 through 2000, and KPMG Peat Marwick and Kaiser/
HRET employer benefit surveys from 1991 through 2000.

0 10

20 30

40 50

60 1991 1993 1995 1997 1999 2000 1998 1996 1994 1992

Percentage of Large Employers Sponsoring Retiree Health Benefits

Kaiser/ HRET Survey a Mercer Survey (Early Retirees) Mercer Survey
(Medicare- Eligible Retirees)

Page 8 GAO- 01- 374 Retiree Health Benefits

survey, which included 2,797 respondents. Thus, year- to- year differences
may have resulted from differences in those employers that chose to respond
to the surveys. Also, while neither Mercer nor Kaiser/ HRET reported the
size of these sampling errors, Kaiser/ HRET?s 1999 and 2000 reports
indicated that 1- year differences in the percentage of large employers
offering retiree health coverage since 1998 were not statistically
significant.

Large firms are more likely to sponsor health insurance for retirees than
are smaller firms. For example, Kaiser/ HRET reported that just over onehalf
of firms with 5,000 or more employees sponsored retiree health insurance in
2000, compared to only about 9 percent of firms with fewer than 200
employees. According to the Mercer data, the percentage of firms with 500 to
999 employees that sponsored retiree health insurance in 2000 was about 40
points lower than for those with 20,000 or more employees- about 30 percent
or less compared to about 70 percent.

The percentage of retirees obtaining health benefits through a former
employer has remained relatively stable since 1997. According to our
analysis of the Census Bureau?s Current Population Survey (CPS), in 1999,
about 37 percent of retirees aged 55 to 64 had employer- sponsored coverage
in their own names from former employers, as did about 26 percent of elderly
retirees in 1999 (see figure 2). 10 Since 1994, these figures varied by only
1 or 2 percentage points for early retirees and even less for elderly
retirees. Year- to- year differences are too small to be statistically
significant. This stability in coverage may exist in part because employers
tend to reduce coverage for future rather than current retirees.

10 These percentages include only those retirees that had employer-
sponsored health coverage ?in their own names.? Nearly 20 percent of early
retirees and about 7 percent of Medicare- eligible retirees also had
employer- sponsored coverage through spouses or other related individuals
who may be either active workers or retired. Percentage of Retirees

With Employer- Sponsored Coverage Has Remained Relatively Steady

Page 9 GAO- 01- 374 Retiree Health Benefits

Figure 2: Percentage of Retirees With Employer- Sponsored Health Benefits
Has Remained Relatively Stable

Source: GAO analysis of Current Population Survey, March Supplements 1995
through 2000.

Employers have adopted several strategies to limit their liability for
retiree health costs other than terminating benefits, and these mechanisms
contribute to an erosion in health benefits available to retirees. Some
employers have restricted eligibility for retiree health insurance to
certain employees, such as those hired before a certain date, thus reducing
their future liability for these benefits without causing a large disruption
in health coverage for those who are currently or soon- to- be retiring.
According to Mercer?s data, about 5 percent of large employers sponsored
Employers Are Restricting

Eligibility, Reducing Benefits, and Increasing Employee Costs

Percentage of Retirees

Early Retirees Medicare- Eligible Retirees

20 0 5 25

30 35

40 45

1994 1995 1996 1997 1998 1999 15

10

Page 10 GAO- 01- 374 Retiree Health Benefits

retiree health insurance in 2000 for only selected employees, typically
excluding employees hired more recently. 11

Employers have also attempted to better manage or control their health care
expenditures by increasing the share of health care costs for which the
retiree is responsible. This approach encompasses a range of activities and
includes employer efforts to increase the retirees? deductibles, copayments,
and premium share; cap the employer?s overall expenditures; or pay a fixed
amount per retiree for health care. 12 For example, more than 10 percent of
employers reported having recently increased retirees? potential out- of-
pocket costs for deductibles, coinsurance, and copayments. Kaiser/ HRET and
Mercer, respectively, report that 16 to 25 percent of employers increased
the retiree?s share of their premium contribution during the last 2 years.
According to Mercer data, about 40 percent of large firms that offer early
retiree health benefits now require these retirees to pay the entire
premium- an increase of 8 or more percentage points since 1997. Likewise,
the percentage of firms requiring Medicare- eligible retirees to pay the
entire premium has increased 7 or more points during this time period.

In other cases, employers have established caps on their overall
expenditures for future retiree health benefits. The 1999 Kaiser/ HRET
survey estimated that about 35 percent of all large firms had recently
capped their total projected contribution for retiree health benefits. How
employers will ensure spending does not exceed the caps and how coverage
will be affected are not clear. Benefit consultants we interviewed stated
that employers typically set caps prospectively at a level higher than
current spending. In some cases, employers that find they are approaching
the cap for retiree health spending will raise it.

Some employers are considering- but not yet widely implementing- a more
fundamental change by shifting to a defined contribution plan, under

11 Less than one- third of large employers offered retiree health benefits
to most retirees in 2000- an 8 percentage point drop since 1997. According
to Mercer officials, the percentage of firms offering benefits to most
retirees represents firms making these benefits available to employees who
were retiring at the time of the survey.

12 Although these strategies are consistent with those used to control costs
for active employees, employers typically pay a much higher portion of
premiums for their active workers than for their retirees. According to
Mercer?s 2000 annual survey, on average, employers paid about two- thirds or
more of the premium for active workers compared to about one- third of the
premium for retirees.

Page 11 GAO- 01- 374 Retiree Health Benefits

which an employer directly provides each retiree with a fixed amount of
money to purchase coverage, either in the individual market or through a
choice of plans offered by the employer. The individual is then responsible
for the difference between the employer?s contribution and the selected
plan?s total premium. In addition to the potential cost savings, employers
report that a defined contribution plan (1) could be administratively
simpler (if the employer simply provided a payment retirees could use to
purchase individual coverage) or (2) could allow them to offer retirees a
wider choice (if the employer provided multiple plan offerings and retirees
could purchase individual coverage as well). Thus far, few employers have
adopted a defined contribution approach. 13

Benefit consultants we interviewed said that many employers would prefer to
move toward a defined contribution approach, but noted several issues that
would need to be addressed before making such a fundamental change. For
example, a recent study by PricewaterhouseCoopers stated that employers are
uncertain about (1) the availability of insurance products that would meet
their objectives for employee choice with a defined contribution approach,
(2) retirees? readiness to assume the responsibility for managing their
health benefits, and (3) the potential loss of the existing tax exclusion
for the employee if the employer shifts to a defined contribution. 14
Contractual bargaining agreements with union plans and concerns among
employees and retirees about major changes in their health benefits have
also limited employers? ability to shift to such an approach. Employer
consultants also indicated that a defined contribution approach would
highlight differences in health benefit costs among employees. Differences
in how much an employer pays for an employee?s health benefits are not
readily apparent with defined benefit plans because

13 Limited data are available regarding the use of defined contributions by
employers for active workers or retirees. A recent Hay Group survey shows
that only 8 percent of employers with at least 100 employees pay a fixed
amount per employee for retiree health benefits, but this may not in all
cases reflect a defined contribution plan unless the employer also allows
retirees flexibility in selecting their health plan or allows them to use
the employer contribution to purchase an individual insurance policy. See
Hay Group, Benefits Report, 1999. Another survey, by the Center for Studying
Health System Change,

found that only 8 percent of employees are paid a fixed employer
contribution amount and have a choice of health plans.

14 Some defined contribution strategies may retain the preferential tax
treatment afforded to employer- sponsored health insurance. For example,
employers could maintain these tax advantages by adopting defined
contribution strategies that comply with Section 125 of the Internal Revenue
Code, which allows contributions of pretax dollars for health care spending
accounts, or in which the employer sponsors a choice of plans.

Page 12 GAO- 01- 374 Retiree Health Benefits

each employee is offered the same set of benefits at the same premiums. Such
differences, however, could become apparent and potentially contentious
under a defined contribution approach. For example, if each employee were
given the same fixed amount for health insurance, those who were older, less
healthy, in need of family coverage, or living in a more expensive area
could pay significantly more than other employees to purchase comparable
coverage. Alternatively, if employees were given a risk- adjusted fixed
amount, those who were older or otherwise more costly would receive a larger
payment than would others.

Various factors suggest that an erosion in employer- sponsored retiree
health insurance may continue. Most immediately, employers are experiencing
the resurgence of inflation in their premium costs and thus could look for
ways to further control costs to remain competitive, especially if the
slowing of the economy continues. Moreover, if the Medicare program
establishes an outpatient prescription drug benefit, some employers may
reexamine their need to offer retiree health coverage. In addition, a recent
court case validating a claim of age discrimination under federal law could
have significant implications for employer- sponsored retiree health
coverage. In the longer term, as the number of retirees relative to active
workers increases with the aging of the baby boom generation, concerns over
employers? retiree health costs are likely to grow.

The resumption of large health insurance premium increases and a general
economic slowing could exacerbate the decline in employer- sponsored health
insurance for retirees. Survey data suggest that health insurance premiums
for employer- sponsored coverage are beginning to rise at an increasing
rate, and these increases will likely be reflected in larger future reported
liabilities. As shown in figure 3, premium increases were higher than the
general inflation rate from 1990 through 1994, but increased less than
general inflation from 1995 through 1997. Because the actual level of
premium inflation was lower than what had been anticipated for this latter
period, some firms reduced their projected FAS 106 liabilities, with some
even showing increasing profits as a result of their adjusted liabilities
for retiree health benefits. Beginning in 1998, however, premiums began
again to rise faster than general inflation and were about 5 percentage
points above general inflation in 2000. Premium increases have occurred
among all major insurance types, including health maintenance organizations
(HMO), preferred provider organizations (PPO), and traditional indemnity
plans. Increasing Cost

Pressures and Other Factors May Further Erode EmployerSponsored Health
Coverage

Rising Health Insurance Premiums and General Economic Factors Could
Influence Employers? Offering of Retiree Health Benefits

Page 13 GAO- 01- 374 Retiree Health Benefits

Figure 3: Health Insurance Premium Increases Resume After a Decline in the
Mid1990s

Note: Premium increases were adjusted for general inflation. Trend lines
showing the adjusted premium rates below zero indicate that unadjusted
premium increases were lower than the general inflation rate.

Source: GAO calculations based on data from KPMG Peat Marwick and Kaiser/
HRET employer benefit surveys and the Bureau of Labor Statistics? Consumer
Price Index.

The strength of the overall economy may also affect whether employers
provide retiree health benefits. Employment remains at near- historic high
levels, which could make employers hesitant to reduce employee benefits that
potentially could harm their recruitment and retention in a tight labor
market. However, if economic growth and employment levels decline, as
economic indicators are starting to show, employers may be more willing to
reevaluate salary and benefits to determine the combination that is most
effective in recruiting and retaining employees.

The strong stock market during the 1990s also provided some employers with
high rates of return on pension and other assets that could be used to cover
some retiree health benefit costs. ERISA requires employers to prefund their
future pension benefit liabilities for retirees, but not their retiree
health benefits. Thus, employers are unlikely to have significant investment
income to fund retiree health benefits directly. However, some employers
have transferred some of the excess pension assets generated by investment
earnings to finance their retiree health benefits. This option

-4 -2

0 2

4 6

8 10

12 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990

Percentage Change in Premiums (adjusted for inflation) from Previous Year

Indemnity PPO HMO

Page 14 GAO- 01- 374 Retiree Health Benefits

to finance retiree health benefits could be curtailed as the rising stock
market seen in the 1990s levels off. Further, recently proposed Internal
Revenue Service regulations that clarify employers? ability to transfer
surplus assets from a defined benefit pension plan to a retiree health
benefit plan would prevent an employer that does so from subsequently
significantly reducing the number of retirees covered or the cost of such
coverage. 15

Recent and proposed changes to Medicare are also leading employers to
reexamine their design of retiree benefits that supplement Medicare. Notable
developments include withdrawals of health plans participating in the
Medicare+ Choice program and proposals to add prescription drug coverage to
Medicare. A Medicare prescription drug benefit could significantly lower the
cost of providing retiree health coverage, but may affect employers?
interest in doing so. Prescription drugs are typically the largest component
of costs for employer- sponsored retiree health benefits for Medicare-
eligible enrollees.

The recent withdrawals of some health plans participating in Medicare+
Choice could affect some employers that had anticipated savings in their
retiree health benefit costs and had encouraged employees to join these
plans. Medicare+ Choice plans typically offer health benefits that are not
available through traditional Medicare but are generally included in
employer- sponsored Medicare supplemental coverage, such as prescription
drugs and reduced cost sharing. Furthermore, many Medicare+ Choice plans
have historically charged enrollees small or no premiums. The 2000 Mercer
survey indicates that 43 percent of large employers that provide retiree
health coverage offer a Medicare+ Choice HMO, and that 11 percent of
Medicare- eligible retirees are enrolled in one of these plans. 16 Some
employers encouraged employees to enroll in Medicare+ Choice plans by
lowering their premium contributions or enhancing benefits. However, benefit
consultants we interviewed report that some employers are concerned about
recent Medicare+ Choice plan premium increases and withdrawals. Mathematica
Policy Research, Inc., reports that Medicare+ Choice premiums more than
doubled from an

15 These proposed regulations were published in the Federal Register on Jan.
5, 2001, 66 FR 1066. 16 For comparison, the Mercer survey reports that for
large employers, 19 percent of preMedicare- eligible retirees and 34 percent
of active workers are enrolled in HMOs. Medicare Changes Are

Likely to Influence Employer- Sponsored Retiree Health Coverage

Page 15 GAO- 01- 374 Retiree Health Benefits

average of $6 per enrollee per month in 1999 to $14 in 2000 and are expected
to increase further in 2001. 17 Since 1999, more than 200 plans have fully
terminated their Medicare+ Choice contracts, reduced their service areas, or
announced plans to reduce their participation in 2001. 18 As Medicare+
Choice plans drop out of the market, some employers are left to find
alternative coverage for retirees for whom they had promised benefits. 19

The effects of a Medicare prescription drug benefit, if enacted, are less
certain but potentially significant. More than 40 percent of Medicare
beneficiaries had prescription drug coverage from a private supplemental
plan in 1996, and three- quarters of them received this prescription drug
coverage from employer- sponsored plans. According to benefit consultants?
reports and some employers we interviewed, prescription drugs typically
represent 40 to 60 percent of employers? retiree health costs for Medicare-
eligible enrollees and have been the fastest- growing element of health
costs, increasing by 17 percent or more during the last year. Thus, adding a
prescription drug benefit to Medicare could lower or make more predictable
employers? costs, encouraging some employers to retain retiree health
benefits. Conversely, the enhanced Medicare benefit could reduce the value
employees place on employer- sponsored retiree health benefits, making it
easier for employers to reduce or eliminate coverage.

Benefit consultants and recent studies indicate that employers? responses to
Medicare coverage of prescription drugs could vary depending on the

17 Amanda Cassidy and Marsha Gold, Medicare+ Choice in 2000: Will Enrollees
Spend More and Receive Less? (Mathematica Policy Research, Inc., July 2000,
p. 9). For 2001, initial plan submissions to the Health Care Financing
Administration (HCFA) indicate a further increase in Medicare+ Choice
premiums to an average $25 per enrollee per month. However, these 2001
initial premiums could be reduced when HCFA releases revised premiums and
benefit designs as resubmitted by plans to reflect changes required by H. R.
5661, the Medicare, Medicaid, and SCHIP Benefits Improvement and Protection
Act of 2000.

18 Medicare+ Choice: Plan Withdrawals Indicate Difficulty of Providing
Choice While Achieving Savings (GAO/ HEHS- 00- 183, Sept. 7, 2000). 19 For
example, one large employer we interviewed indicated it had encouraged
eligible retirees to enroll in Medicare+ Choice plans by providing outreach
and educational information informing them of the potential benefits of
these plans. This employer had as many as 19 percent of its Medicare-
eligible retirees enrolled in Medicare+ Choice plans, but recent plan
withdrawals have reduced the share of retirees participating in these plans
to less than 10 percent.

Page 16 GAO- 01- 374 Retiree Health Benefits

prescription drug benefit design implemented, for example, the coverage
limits that are included and beneficiary cost sharing that would be
required. One study evaluating two general proposals estimated that
employers would have significant cost savings and likely would retain
supplemental prescription drug coverage for retirees to complement an
outpatient prescription drug benefit. 20 However, any savings that might
actually be realized are dependent on the design features that Congress
ultimately enacts and employers? and beneficiaries? responses.

According to employer benefit consultants, an August 2000 court ruling
raises concern among some employers and could potentially accelerate the
decline of retiree health benefits, although its actual effect is uncertain
at present. The Third Circuit Court of Appeals, which has jurisdiction for
Pennsylvania, New Jersey, Delaware, and the Virgin Islands, held that
Medicare- eligible retirees have a valid claim of age discrimination under
the Age Discrimination in Employment Act (ADEA) 21 when their employers
provide them with health insurance coverage inferior to that provided to
retirees not yet eligible for Medicare. In this case, Erie County,
Pennsylvania, had offered Medicare- eligible retirees an HMO under contract
with Medicare that had several features that were more restrictive than the
point- of- service plan available to those retirees not yet Medicare-
eligible, including a more limited choice of physicians and required primary
care physician authorization for medical services. The Third Circuit decided
that Medicare- eligible retirees were treated differently because of age but
Erie County might not be in violation of the ADEA if the health plans
provided to Medicare- eligible retirees are equal in either benefits or
costs to the plans offered to retirees under age 65. 22 The Third Circuit
has sent the case back to the District Court for it to determine whether the
county?s treatment of pre- and post- age 65 retirees, under their respective
plans, meets either the equal cost or equal benefit requirement under ADEA.

20 See Hewitt Associates, LLC, The Implications of Medicare Prescription
Drug Proposals for Employers and Retirees, Kaiser Family Foundation, July
2000, pp. 4- 8. 21 29 USC 621- 633a. ADEA prohibits employers from
discriminating against individuals age 40 or older with respect to
compensation, terms, conditions, or privileges of employment. 22 Erie County
Retirees Association v. County of Erie, 220 F. 3d 193 (3d Cir. 2000) cert.
denied, 69 U. S. L. W. 3409 (U. S. Mar. 5, 2001) (No. 00- 906). Recent Court
Decision

May Prompt Employers to Reevaluate Their Retiree Health Benefits

Page 17 GAO- 01- 374 Retiree Health Benefits

The implications of the Erie County decision for other employers remain
uncertain. While only about 12 percent of employers offering retiree health
coverage enroll Medicare- eligible enrollees in an HMO- the issue raised in
the Erie decision- many other employers make further distinctions between
the health benefits provided to their retirees based on their eligibility
for Medicare. Also, some employers provide retiree health benefits only for
early retirees and not for Medicare- eligible retirees. Some benefit
consultants have said that this decision, if adopted by other federal
courts, could lead some employers to make changes to their retiree health
benefits so that benefits for Medicare- eligible retirees are no more
restrictive than those offered other retirees, in some cases further eroding
the level of employer- sponsored retiree health benefits. These changes
could include eliminating retiree health benefits; reducing benefits to the
lowest common level for all retirees; offering a Medicare supplemental plan
that, combined with the traditional Medicare program, is at least as
generous as benefits provided to pre- Medicare- eligible retirees; or paying
retirees the same defined contribution to purchase retiree health coverage
whether or not they are Medicare- eligible.

In the past, retiree benefit litigation has not focused on age
discrimination, but on employers? ability to modify or terminate retiree
health benefits. Since ERISA provides employers considerable flexibility to
manage the cost, design, and extent of health care benefits they provide,
federal courts have generally ruled in favor of the employer when challenged
over termination of the plan or changes in retiree health benefits if the
employer had included the right to change benefits in plan documents or
collective bargaining agreements. Nearly all companies reserve the right in
plan documents to modify health benefits for current and future retirees.
See appendix II for an overview of the case law history regarding retiree
health benefits.

Over the next 30 years, both the number and proportion of Americans
potentially affected by a decline in employer- sponsored retiree health
insurance will increase, whether or not additional employers drop this
coverage. Elderly and near- elderly individuals together will represent more
than one- fourth of the population of the United States in the year 2011-
the year when the first of the baby boomers will turn 65 years old- compared
to one- fifth of the current population. As shown in figure 4, the number of
near- elderly individuals will increase by 75 percent by 2020, and the
number of elderly will double by 2030. Thus, employers will not only have a
larger number of retirees for which to potentially provide health coverage,
but comparatively fewer active workers to subsidize these Aging of Baby Boom

Generation Could Further Pressure Employers to Reduce Retiree Health
Benefits

Page 18 GAO- 01- 374 Retiree Health Benefits

benefits. This declining base of productive workers to support more retirees
could make it more difficult for many employers to maintain retiree health
benefits.

Figure 4: Baby Boom Generation Will Greatly Increase the Elderly and Near-
Elderly Population

Source: U. S. Census Bureau, ?Projections of the Total Resident Population
by 5- Year Age Groups and Sex With Special Age Categories: Middle Series,?
selected years 2000 to 2030, January 2000.

0 10

20 30

40 50

60 70

80 2030 2020 2010 2000

Number of Individuals Ages 55 to 64 and 65 or Older (in Millions)

Ages 55 to 64 Ages 65 or Older

24.0 34.8 35.4

39.7 42.1 37.3 53.7

70.3

Page 19 GAO- 01- 374 Retiree Health Benefits

Federal laws guarantee access to coverage to certain individuals who lose
group coverage. However, the coverage options available to retirees whose
former employers reduce, eliminate, or did not offer health coverage may be
limited. Affected retirees may seek to purchase coverage on their own as
individuals- either an individual insurance market product for those under
65 or a Medicare supplemental plan for those 65 or older. However, depending
on their demographic characteristics and health status, retirees may
encounter difficulty obtaining or affording comprehensive plans.

Although federal laws, such as COBRA and HIPAA, guarantee some individuals
leaving employer- sponsored group health plans access to continued coverage
or to a product in the individual market, these laws may offer only limited
protections to many retirees that lack access to employer- sponsored health
benefits. Individuals whose jobs provided health benefits that ended at
retirement may continue temporary coverage for up to 18 months under COBRA,
but COBRA may be an expensive alternative because the employer is not
required to pay any portion of the premium. Also, COBRA coverage is
generally not available to individuals whose employers terminate health
insurance after they retire.

Likewise, HIPAA?s group- to- individual portability provision guarantees
access to at least two individual insurance policies, regardless of health
status and without exclusions, to eligible individuals leaving group
coverage. States comply with this provision by using either the federal
rules- which require carriers to guarantee access to certain insurance
policies to eligible individuals- or an alternative mechanism. Under an
alternative mechanism, states may, within broad federal parameters, design
other approaches, such as a state high- risk pool, to provide eligible
individuals with a choice of coverage. 23 Depending on the approach taken by
states to comply with HIPAA and the extent to which a state restricts
premium rate variation in the individual market, the premiums these
individuals face may be substantially higher than prices charged to healthy
or younger individuals, and may be cost prohibitive to many retirees.

23 In Private Health Insurance: Progress and Challenges in Implementing 1996
Federal Standards (GAO/ HEHS- 99- 100, May 12, 1999), we reported that 12
states were operating under the federal rules and 38 were using an
alternative mechanism. Of the 38 using an alternative mechanism, 22 were
using a high- risk pool to provide coverage to these eligible individuals.
Also see Implementation of HIPAA: State- Designed Mechanisms for Group- to-
Individual Portability (GAO/ HEHS- 98- 161R, May 20, 1998). Loss of Employer

Coverage Can Have Significant Implications for Certain Retirees

Federal Laws Provide Some Protections to Retirees But Their Impact May Be
Limited

Page 20 GAO- 01- 374 Retiree Health Benefits

Although these laws are limited in the protections they afford individuals
without access to employer- sponsored health benefits, they may facilitate
the transition of some retirees from employer- based coverage to coverage in
the individual market.

Although federal law provides some retirees with guaranteed access to
certain coverage, others may encounter difficulty obtaining or affording
coverage, especially since health insurance carriers often consider a
retiree?s health status in making coverage decisions, and many retirees
report poorer health. Near- elderly and elderly individuals are the most
likely to report fair or poor health of any age group. The CPS indicates
that more than one- fifth of near- elderly and one- third of elderly
individuals reported fair or poor health in 1999, compared to about 14
percent of 45- to 54- year- olds. Moreover, as shown in table 1, the retired
among these populations were more likely to report poorer health status than
those who were employed.

Table 1: Percentage of Elderly and Near- Elderly Individuals Reporting Fair
or Poor Health Status by Employment Status, 1999

Percentage reporting fair or poor health Age Employed Retired

55- 64 11.3 21.7 55- 61 10.6 19.7 62- 64 14.5 23.7 65+ 17.7 35.3

65- 74 17.0 30.0 75+ 20.0 40.2

Source: GAO Analysis of March 2000 Current Population Survey.

For retirees under 65, the individual insurance market, on which about 7
percent of the near- elderly population relied for their primary source of
coverage in 1999, may be an option for some individuals until they reach
Medicare eligibility. However, in most states, access to the individual
market is not guaranteed, and individuals may encounter difficulty obtaining
comprehensive plans at affordable prices, or any plans at all. The problems
in purchasing plans may be exacerbated because retirees who lose employer-
sponsored coverage and individually purchase private health insurance become
responsible for the entire premium rather than the share they paid for
employer- sponsored coverage. Further, except for some self- employed
persons and certain individuals with medical expenses exceeding 7.5 percent
of adjusted gross income, the federal tax Alternative Coverage May

Be Limited, Unavailable, or Unaffordable to Retirees Whose Employers
Eliminated Health Benefits

Page 21 GAO- 01- 374 Retiree Health Benefits

code offers no subsidies for the individual purchase of private health
insurance. 24

Unlike the employer- sponsored market, where the price for coverage is based
on the risk characteristics of the entire group, premium prices in the
individual markets of most states are based on characteristics of each
applicant, such as age, gender, geographic area, tobacco use, and health
status. Even for persons with similar health, premium prices can vary
significantly. For example, carriers anticipate that the likelihood of
requiring medical care increases with age. Consequently, individuals between
55 and 64 in the individual market of most states pay considerably more than
a 30- year- old for the same coverage. For group policies, older individuals
usually pay the same amount as younger members of the group. Table 2
demonstrates the difference in premiums charged by carriers we contacted to
applicants based solely on age for the same comprehensive health plan.

Table 2: Examples of Differences in Premiums for a 30- Year- Old and a 60-
Year- Old Male

Deductible (plan type) Monthly premium,

30- year- old Monthly

premium, 60- year- old

Carrier A (Arizona) $250 (indemnity) $162 $512 Carrier B (Illinois) $500
(PPO) $116 $439 Carrier C (Colorado) $0 (HMO) $132 $324

Note: Although the range in prices listed represents differences
attributable to age only, each of these carriers varies its rates for other
characteristics as well. In addition to adjustments for differences in age,
Carrier A also varies rates for gender, geographic area, and family size;
Carrier B for gender, geographic area, tobacco use, and family size; and
Carrier C for family size.

Source: GAO review of premiums from selected carriers.

About 20 states have passed legislation that limits the amount individual
market carriers can vary premium rates or the characteristics they may use
to vary these rates, but substantial variation exists among these states.
For example, Minnesota allows individual market carriers to vary premiums
for differences in individual characteristics such as occupation, age, and
geographic area; New Hampshire allows carriers to modify premium rates only
for differences in age; and New Jersey does not allow

24 The federal tax code also does not provide subsidies to individuals who
purchase COBRA continuation coverage.

Page 22 GAO- 01- 374 Retiree Health Benefits

carriers to vary rates on the basis of any individual characteristics. 25 In
states where no restrictions apply, a carrier may also engage in medical
underwriting, whereby it evaluates the health status of applicants to
determine whether it will charge a higher premium rate, exclude an existing
health condition from coverage, or deny coverage altogether. For example,
individuals with serious health conditions such as heart disease are almost
always denied coverage. Other, non- life- threatening conditions, such as
chronic back pain, may also be excluded from coverage. In contrast, under a
group plan, individuals with these conditions could not be denied coverage
nor be required to pay a higher premium than others in the plan, and
specific conditions could only temporarily be excluded from coverage. Table
3 provides examples of how several large individual market carriers treat
non- HIPAA- eligible individuals with certain health conditions in states
that do not prohibit medical underwriting.

Table 3: Examples of Specific Health Conditions for Which Carriers May
Decline Coverage or Exclude From Coverage

Conditions for which an applicant may be denied coverage altogether
Conditions that may be explicitly

excluded from an applicant?s coverage

Alzheimer?s disease Asthma Diabetes Glaucoma Hypertension Impotence Migraine
headaches Parkinson?s disease Rheumatoid arthritis Ulcers

Source: GAO review of selected carriers? medical underwriting practices.

Federal law provides certain guarantees to ensure that retirees over 65 have
access to Medicare supplemental policies in the event that an employer
eliminates or reduces coverage; however, the coverage alternatives available
to these individuals may be limited, less

25 See Private Health Insurance: Declining Employer Coverage May Affect
Access for 55- to 64- Year- Olds (GAO/ HEHS- 98- 133, June 1, 1998) and
Private Health Insurance: Millions Relying on Individual Market Face Cost
and Coverage Trade- Offs (GAO/ HEHS- 97- 8, Nov. 25, 1996).

Page 23 GAO- 01- 374 Retiree Health Benefits

comprehensive, or more expensive. 26 For example, a retiree over 65
receiving supplemental coverage through a typical private, employersponsored
plan may receive coverage for a number of benefits, including prescription
drugs. If the employer eliminated this coverage, the affected retiree could
seek to purchase alternative coverage on his or her own through the Medigap
market. However, under federal law, these individuals would be guaranteed
access without medical underwriting to only 4 of the 10 standardized Medigap
policies available in most states. 27 None of these four plans includes
prescription drug coverage. Access to other Medigap plans, including those
with limited prescription drug coverage, could depend on the retiree?s
health and the carrier?s willingness to offer coverage. 28 Thus, retirees
could end up with less comprehensive coverage than they received from their
former employers.

Further, in cases where the employer had contributed to the majority or all
of the cost of the Medicare- eligible retiree?s health plan, the retiree
will be responsible for the full premium price. Retirees who had obtained
employer- sponsored coverage through a Medicare+ Choice plan could
potentially face similar challenges in terms of limited choice and coverage
and higher costs in the event that health plans were no longer available,
such as when a Medicare+ Choice plan withdraws from the market. Regardless
of how they lose their employer- sponsored coverage,

26 Federal Medigap protections include ?guaranteed issue? rights, which
provide certain individuals access to a limited number of Medigap products
at a time other than when they are first eligible for Medicare. For example,
individuals are eligible for at least four Medigap plans if their employer
eliminates retiree benefits, or if their managed care plan or traditional
Medicare plan provider leaves the program or stops serving their area,
provided they apply for coverage no later than 63 days after their health
coverage ends. Depending on the state and the health status of the
applicant, carriers may choose to offer more than these four plans to
qualified individuals. In addition to these federal protections, 21 states
provide for additional Medigap protections, according to HCFA?s 2000 Guide
to Health Insurance for People with Medicare.

27 The standardized plans, called A through J, differ in the benefits they
provide. For example, plan A provides basic (core) benefits, whereas plans
H, I, and J provide more comprehensive benefits, including limited
prescription drug coverage. (See appendix III for a description of the
Medigap benefits included in some standardized plans.) Massachusetts,
Minnesota, and Wisconsin are exempt from providing the standard plans
because they standardized their Medigap policies prior to the establishment
of the federal standardized plans A through J.

28 Moreover, Medigap prescription drug coverage is limited. For example,
after an individual pays a $250 deductible, plans H and I cover 50 percent
of prescription drug costs up to a maximum of $1, 250 per year. Plan J
offers a somewhat more extensive prescription drug benefit; after an
enrollee pays the $250 deductible, the plan covers 50 percent of
prescription drug costs up to a maximum of $3, 000 per year.

Page 24 GAO- 01- 374 Retiree Health Benefits

purchasing Medigap coverage may be a costly alternative for many retirees.
Table 4 shows examples of premiums for several popular Medigap plans in
selected states. 29

Table 4: Sample Monthly Premiums for a 65- Year- Old for Three Medigap Plans
in Four Areas

Plan C Plan F Plan H

Chicago, Illinois $85 $94 Not offered Tampa, Florida $117 $129 $170 North
Carolina (statewide) $112 $100 $152 Denver, Colorado $129 $135 $175

Note: The cost of Medigap policies varies considerably among carriers,
although the benefits are identical. We obtained premium prices for Medigap
policies from one of the largest Medigap carriers in each state, according
to state insurance department representatives. The cited rates were
applicable in 2000 for all places but Tampa, Florida, where the rates were
effective as of December 1999.

Plan F is the most popular Medigap plan. According to data from the National
Association Insurance Commissioners, plans C and F together represent over
60 percent of all Medigap sales. Plan H is one of the three standardized
plans that include a limited prescription drug benefit. Under the federal
Medigap special enrollment rules, eligible individuals have guaranteed
access to four plans, including plans C and F. In contrast, access to plan H
may be subject to medical underwriting.

Source: GAO review of Medigap premiums obtained from state insurance
departments.

Premium increases and forecasts for a potential economic slowdown could pose
concerns for many employers and may make employersponsored benefits
vulnerable to further erosion. In the longer term, these factors, coupled
with the potential for Medicare reforms and an increasing number of aging
baby boomers, may produce even more uncertainty and cost pressures for
employers. Consequently, as the number of retirees without employer- based
coverage increases, retirees, particularly those in poorer health, may
encounter difficulty finding affordable alternative health coverage.

We provided a draft of this report to the Department of Labor and several
expert reviewers for comments. The reviewers provided technical comments
that we incorporated as appropriate.

29 A HCFA official said that Medicare requires all carriers participating in
the Medigap market to offer plan A. In addition to plan A, carriers can opt
to provide any combination of the remaining nine supplemental policies. For
nationwide examples of Medigap premiums, see Medigap: Premiums for
Standardized Plans That Cover Prescription Drugs (GAO/ HEHS- 00- 70R, Mar.
1, 2000). Concluding

Observations Agency Comments

Page 25 GAO- 01- 374 Retiree Health Benefits

As agreed with your office, unless you announce the report?s contents
earlier, we plan no further distribution of it until 30 days after its issue
date. We will then send copies to the Honorable Elaine Chao, Secretary of
Labor; the Honorable Michael McMullan, Acting Administrator of the Health
Care Financing Administration; and other interested congressional committees
and members and agency officials. We will also make copies available to
others on request.

Please call me at (202) 512- 7118 if you have any questions. Another contact
and major contributors are listed in appendix IV.

Sincerely yours, Kathryn G. Allen Director, Health Care- Medicaid

and Private Health Insurance Issues

Appendix I: Methodology Page 26 GAO- 01- 374 Retiree Health Benefits

In conducting our study, we reviewed available employer survey data,
analyzed the March supplements of the Census Bureau?s 1995 to 2000 Current
Population Survey, reviewed applicable laws and court decisions pertaining
to changes in employer- sponsored coverage, obtained individual insurance
market premiums from carriers, and interviewed employee benefit consulting
firms and several large employers. We conducted our work from June 2000
through February 2001 in accordance with generally accepted government
auditing standards.

For information on the extent to which employers offer health coverage to
retirees as well as the conditions under which coverage is made available,
we relied on private employer benefit surveys, specifically those of (1) the
Health Research and Educational Trust (HRET) sponsored by the Kaiser Family
Foundation (and formerly produced by KPMG Peat Marwick) and (2) William M.
Mercer, Incorporated (which were formerly produced by Foster Higgins). These
surveys have more current or comprehensive information on retiree health
benefits than do existing surveys conducted by the federal government. Also,
these surveys are distinguished from a number of other private ones not only
by their content but also by their large random samples, which allow their
results to be generalized to a larger population of employers. Neither
survey, however, reports sufficient information about its sampling errors to
determine the precision of its estimates, although the Kaiser/ HRET survey
notes that year- to- year changes in the percentage of employers offering
retiree health benefits have not been significant since 1998.

The Kaiser/ HRET surveys are based on samples of employers with three or
more employees selected from a Dun and Bradstreet list of private and public
employers. For some retiree health benefit questions, the Kaiser/ HRET
survey limits its reported data to employers with 200 or more employees. The
Kaiser/ HRET surveys? sample size was about 1,800 in 1993 and 1,887 in 2000,
with response rates of 55 percent and 45 percent, respectively (see table 5
for additional information on the Kaiser/ HRET sample by firm size).
Appendix I: Methodology

Surveys on EmployerSponsored Retiree Health Insurance

Appendix I: Methodology Page 27 GAO- 01- 374 Retiree Health Benefits

Table 5: 2000 Kaiser/ HRET Sample by Firm Size Firm size Sample size

Fewer than 200 employees 843 200 to 999 employees 363 1,000 to 4, 999
employees 367 5,000 or more employees 314

Source: Kaiser/ HRET Employer Health Benefits, 2000 Annual Survey.

The Mercer/ Foster Higgins surveys are based on samples of employers with 10
or more employees selected from the Dun and Bradstreet database for private
firms and the Census of Governments for government agencies. For some
retiree health benefit questions, the Mercer survey limits its reported data
to employers with 500 or more employees. The Mercer survey?s sample size was
about 3,676 in 1993, with a response rate of 78 percent. In 2000, Mercer?s
database contained 2,797 responses from its random sample- a response rate
of about 50 percent.

We relied on the Census Bureau?s March supplement of the Current Population
Survey (CPS) for information on the demographic characteristics of retirees
and their access to insurance. The survey is based on a sample designed to
represent a cross- section of the nation?s civilian noninstitutional
population. In March 2000, about 60,000 households were sampled for the
survey, and about 47,000 of them, containing approximately 94,000 persons 15
years of age or older, were interviewed. The total response rate for the
2000 CPS March supplement was about 86 percent.

Because the CPS is based on a sample, any estimates derived from the survey
are subject to sampling errors. A sampling error indicates how closely the
results from a particular sample would be reproduced if a complete count of
the population were taken with the same measurement methods. To minimize the
chances of citing differences that could be attributable to sampling errors,
we highlight only those differences that are statistically significant at
the 95 percent confidence level.

The following provides more detail on how some of the CPS questions are
phrased and how the responses are categorized, including some clarifications
and limitations. Current Population

Survey

Appendix I: Methodology Page 28 GAO- 01- 374 Retiree Health Benefits

The CPS asks whether a respondent was covered by employer/ unionsponsored,
Medicare, Medicaid, private individual, or certain other types of health
insurance in the last year. Thus, the 2000 CPS asked what coverage an
individual might have had in 1999. Until recently, individuals were not
asked directly whether they were uninsured, but were deemed to be so if they
denied having any of the above sources of coverage. As a result, the CPS is
believed to have slightly overestimated the number of people who are
uninsured. Beginning in 2000, the CPS insurance questions are being revised
so that individuals who report no health insurance are specifically asked if
they are uninsured; however, the Census Bureau has not yet reported the
responses to this question.

Another limitation to the CPS insurance questions is that they do not ask
how long an individual had each source of insurance or whether the
individual was covered through any source( s) at the time of the interview.
Thus, the CPS considers a person to be insured even if he or she was covered
for only 1 day in the past year, and regardless of whether the person was
insured on the day of the interview. However, some individuals may respond
with their current insurance status rather than their coverage for the past
year.

Because some people may receive coverage from several sources, we
prioritized the source of insurance individuals reported to avoid double
counting. That is, if individuals reported having coverage from two or more
kinds of insurance, we assigned them to one type based on a hierarchy.
Specifically, employer- sponsored coverage was considered primary to other
sources of coverage for individuals less than 65 years of age, and
respondents were classified as having employer- sponsored coverage even if
they also had other types of coverage. The other types of health insurance
were prioritized in the following order: Medicare, Medicaid, military/
veterans, and individual insurance. For people 65 years of age or older, we
first determined whether an individual had Medicare and then prioritized any
remaining coverage in the following order: employer- sponsored, Medicaid,
military/ veterans, and individual insurance.

The CPS also asks whether employer- sponsored insurance is provided ?in

their own name? or as a dependent of another policyholder. We primarily
focused on whether retired individuals had employer- sponsored health
insurance coverage in their own names because this coverage can most
directly be considered retiree health coverage from a former employer.
Insurance Status

Appendix I: Methodology Page 29 GAO- 01- 374 Retiree Health Benefits

The CPS questions that we used for employment status are similar to those on
insurance status. Respondents are considered employed if they worked at all
in the past year and not employed only if they did not work at all during
the past 12 months.

We reviewed applicable laws and court decisions pertaining to changes in
employer- sponsored coverage. Appendix II presents additional information on
the results of this review.

We contacted health insurance carriers in certain states with limited rating
restrictions to obtain premiums for individual market policies available to
applicants who were 30 and 60 years old. Similarly, we contacted several
state insurance departments to obtain premium prices of Medigap policies
available to eligible individuals. From carriers, we also obtained
information on the kinds of health conditions that may be excluded from
coverage or for which an applicant may be denied coverage altogether.

For additional information on current and prospective changes to employer-
sponsored retiree health benefits, we interviewed and obtained documents
from several global employee benefits consulting firms. In addition, we
contacted selected large employers for information on the kinds of changes
they had made to their retiree health benefits as well as the factors that
had led to these changes. Employment Status

Legal Review Insurance Premiums

Interviews With Employee Benefit Consulting Firms and Employers

Appendix II: Case Law Review of Changes to Employer- Sponsored Retiree
Health Benefits

Page 30 GAO- 01- 374 Retiree Health Benefits

Although employers often provide health benefits to retirees, they are not
required to do so. However, employers that provide retiree health benefits
are responsible for acting consistent with certain administrative and
fiduciary requirements established by the Employee Retirement Income
Security Act of 1974 (ERISA). In most retiree health benefit litigation,
retirees have sought to restore health benefits that have been reduced or
eliminated by alleging that the employer breached representations made about
the quality, extent, and duration of retiree health benefits. Courts
generally have ruled that an employer can modify or terminate health care
benefits provided to retirees if the employer specifically had reserved that
right in health benefit documents or collective bargaining agreements. A
recent Third Circuit Court decision, which focused on whether differences in
health benefits provided to Medicare- eligible retirees and retirees not yet
eligible for Medicare violated the Age Discrimination in Employment Act
(ADEA), could influence employer decisions on whether to continue retiree
health benefits.

Employer- sponsored retiree health benefits are considered welfare benefits
under Title I of ERISA. 1 To ensure a uniform federal law governing employee
benefit plans, 2 ERISA generally preempts all state law as it may pertain to
employee benefit plans covered under its jurisdiction. 3

Under ERISA, private employers who choose to provide retiree health benefit
plans must give plan participants and beneficiaries a summary plan
description (SPD) describing their rights and obligations, and are
responsible for acting consistently with certain administrative and
fiduciary requirements. The SPD, which must be written in a manner intended
to be understood by the average plan participant, specifies retirees? rights
and the circumstances under which the health plan can be modified or
terminated. In addition, ERISA establishes fiduciary standards to protect
employee benefit plan participants and beneficiaries from plan
mismanagement. Generally, these standards require fiduciaries to act with
the care, skill, and diligence of a prudent person in protecting plan
participants and beneficiaries.

1 29 U. S. C. 1001- 1191c. 2 Under ERISA, employee benefit plans can be
pension plans or welfare plans. Welfare plans are specifically exempt from
vesting requirements to which pension plans are subject. 29 U. S. C. 1051(
1).

3 29 U. S. C. 1144. Appendix II: Case Law Review of Changes to

Employer- Sponsored Retiree Health Benefits ERISA Standards Applicable to
Retiree Health Plans

Appendix II: Case Law Review of Changes to Employer- Sponsored Retiree
Health Benefits

Page 31 GAO- 01- 374 Retiree Health Benefits

Federal courts generally have ruled that an employer can modify or terminate
retiree health care benefits based on the fact that the employer
specifically had reserved that right in health benefit documents or
collective bargaining agreements. 4 Challenges to maintain or restore these
benefits largely have been unsuccessful. 5

Generally, retirees cannot rely on oral communications or representations
that benefits would be maintained for life or without reduction. 6 ERISA
requires that every plan be established and maintained under a written
instrument. 7 Thus, courts look to plan documents including the terms of the
SPD to determine if the plan precludes an employer from modifying or
terminating benefits. Courts, however, are divided on whether the
reservation clause must be contained in the SPD. Several courts have held
that, inasmuch as the SPD is an employee?s primary source of information
regarding employment benefits, employees are entitled to rely on the
descriptions in the summary. 8 However, at least one appellate court has
ruled that an employer reserved the right to amend or terminate health

4 See, e. g., Curtiss- Wright Corp. v. Schoonejongen, 514 U. S. 73, 78
(1995) (Employers ?are

generally free under ERISA, for any reason at any time, to adopt, modify, or
terminate welfare plans.?)

5 Some courts, however, have recognized exceptions for fraud or
misrepresentation. Challenges to salaried retiree health benefits
modifications are brought exclusively under section 502( a)( 1)( B) of
ERISA, 29 U. S. C. 1132( a)( 1)( B).

6 In re Unisys Corp. Retiree Medical Benefits ERISA Litigation, 58 F. 3d
896, 902 (3d Cir. 1995) (? the written terms of the plan documents control
and cannot be modified or superseded by the employer?s oral undertakings?),
cert. denied sub nom Unisys Corp. v. Pickering, 517 U. S. 1103 (1996).

7 29 U. S. C. 1102( a)( 1); Musto v. American General Corp., 861 F. 2d 897,
910 (6th Cir. 1988) (? we are quite certain that Congress, in passing ERISA,
did not intend that participants in employee benefit plans should be left to
the uncertainties of oral communications in finding out precisely what
rights they were given under their plan?), cert. denied, 490 U. S. 1020
(1989).

8 Barker v. Ceridian Corp., 193 F. 3d 976, 983 (8th Cir. 1999) (? Where the
formal plan and summary plan description conflict, the employer is bound by
the summary plan description.?), cert. denied, 120 S. Ct. 1963 (2000);
Helwig v. Kelser- Hayes Co., 93 F. 3d 243 (6th Cir. 1996); cert. denied, 519
U. S. 1059 (1997); Pierce v. Security Trust Life Ins. Co., 979 F. 2d 23, 27
(4th Cir. 1992). Employers? Rights to

Modify or Terminate Health Benefits

Appendix II: Case Law Review of Changes to Employer- Sponsored Retiree
Health Benefits

Page 32 GAO- 01- 374 Retiree Health Benefits

benefits if the reservation clause is in other plan documents, even if it is
not mentioned in the SPD. 9

Retirees receiving health benefits under collective bargaining agreements
have fared only slightly better than salaried retirees in litigation. 10
Absent a finding that the parties intended that the health benefits were to
be maintained for the retiree?s life or some period beyond the expiration of
the agreements, courts generally view these benefits as ending at the
expiration of the agreements.

In one of the earliest collectively bargained contract cases, UAW v.
YardMan, Inc., 11 the court noted that any right to lifetime benefits must
be based on the contract. The contract contained the promise that the
company will provide insurance to retired employees, which reasonably could
be construed either as a reference to the nature of retiree benefits or as
creating a benefit continuing beyond the life of the agreement. The court
resolved the ambiguity by looking to other provisions of the collective
bargaining agreement for evidence of intent and an interpretation in accord
with the entire document. From that examination, the court concluded that
the parties had intended to create insurance benefits that continued beyond
the life of the collective bargaining agreement. 12

The court noted that retiree benefits were permissive not mandatory subjects
of collective bargaining, and that ?it is unlikely that such benefits, which
are typically understood as a form of delayed compensation or reward for
past services, would be left to the contingencies of future negotiations.?
The court characterized retiree health benefits as ?status?

9 Sprague v. General Motors Corp. 133 F. 3d 388, 400 (6th Cir. 1998) (? Not
all of the summaries clearly stated that GM could amend or terminate the
plan. But the failure to allude to this power in some of the booklets did
not prejudice GM?s right, clearly stated in the plan itself, to change the
plan?s terms?), cert. denied, 524 U. S. 923 (1998).

10 Typically, litigation by former union employees receiving retirement
health benefits has been filed under section 301 of the Labor Management
Relations Act, 29 U. S. C. 185, and section 502( a)( 1)( B) of Title I of
ERISA, 29 U. S. C. 1132( a)( 1)( B).

11 716 F. 2d 1476 (6th Cir. 1983), cert. denied, 465 U. S. 1007 (1984). 12
Id. At 1479- 81.

Appendix II: Case Law Review of Changes to Employer- Sponsored Retiree
Health Benefits

Page 33 GAO- 01- 374 Retiree Health Benefits

benefits carrying with them ?an inference that they continue so long as the
prerequisite status is maintained.? 13

The Yard- Man case served to spur some, but not all, courts into concluding
that collective bargaining agreement language that appeared to require the
continuation of retiree health benefits should require employers to provide
those benefits. 14 The First, Fourth, Sixth, and Eleventh Circuits have
followed the ?inference? standard first articulated in Yard- Man. 15 The
Fifth Circuit has questioned the inference. 16 The Eighth Circuit has
rejected the inference that employees engaged in collective bargaining are
forgoing wages in consideration for retiree health benefits. 17 The Seventh
Circuit has also rejected the inference altogether, observing that the
courts in this circuit do not distinguish between collective bargaining
agreements and ERISA plans for this purpose. 18

Claims of some retirees that modification or termination of their retiree
health benefits constitutes a breach of fiduciary duty have, by and large,
been denied. 19 However, the Supreme Court articulated a standard for
fiduciary liability in certain limited instances, finding that an employer

13 Id. At 1482. 14 United Steelworkers of America v. Conners Steel Co., 855
F. 2d 1499 (11th Cir. 1988), cert. denied, 489 U. S. 1096 (1988); Policy v.
Power Pressed Steel Co., 770 F. 2d 609 (6th Cir.

1985), cert. denied, 475 U. S. 1017 (1986). 15 See United Steelworkers v.
Textron, Inc., 836 F. 2d 6 (1st Cir. 1987; Keffer v. H. K. Porter Co., 872
F. 2d 60 (4th Cir. 1989); Golden v. Kelsey- Hayes Co., 73 F. 3d 648 (6th
Cir. 1996); Smith v. ABS Industries, Inc., 890 F. 2d 841 (6th Cir. 1989);
United Steelworkers of America v. Conners Steel, 855 F. 2d 1499 (11th Cir.
1988)).

16 United Paperworkers International Union v. Champion International Corp.,
908 F. 2d 1252, 1261 n. 12 (5th Cir. 1990) (? we find no basis in logic or
federal labor policy for such a broad inference.?) See also International
Association of Machinists v. Masonite Corp., 122 F. 3d 228, 231 (5th Cir.
1997).

17 In Anderson v. Alpha Portland Industries, Inc., the court concluded that
retiree health and life insurance benefits were not vested for the lifetime
of the retiree, but were intended to last only for the duration of the
collective bargaining agreement. 836 F. 2d 1512, 1517 (8th Cir. 1988), (? We
believe that it is not at all inconsistent with labor policy to require
plaintiffs to prove their case without the aid of gratuitous inferences.?)
cert. denied sub nom, Anderson v. Slattery Group. Inc., 489 U. S. 1051
(1989).

18 Rosetto v. Pabst Brewing Company, Inc., 217 F3d 539, 544 (7th Circ 2000).
19 See, e. g., id. at 817- 818; Musto v. American General Corp., 861 F. 2d
897, 912 (6th Cir. 1988) (? when an employer decides to establish, amend, or
terminate a benefits plan, . . . its actions are not to be judged by
fiduciary standards.?)

Appendix II: Case Law Review of Changes to Employer- Sponsored Retiree
Health Benefits

Page 34 GAO- 01- 374 Retiree Health Benefits

acted as a fiduciary when it intentionally misled employees about the future
and security of benefits. 20 The Third Circuit has detailed four elements
retirees must demonstrate to succeed in a breach of fiduciary duty claim:
proof of fiduciary status, misrepresentations by the company, company
knowledge of the confusion created, and resulting harm to the employees. 21

The decision in Erie County Retirees Association v. County of Erie 22 raises
a new issue in evaluating retiree health benefits and could affect an
employer?s continued provision of these benefits. Erie County selected a
health plan for Medicare- eligible retirees that limited choice of a primary
care physician and reimbursed for services, except emergencies, only if
authorized by the primary care physician. However, unlike a traditional
indemnity plan, there were no deductibles and few or no copayments. For
former employees not yet Medicare- eligible, the county selected a hybrid
point- of- service plan under which a retiree could choose an HMO option
(and accept its benefits and limitations) or a traditional indemnity option.
The Medicare- eligible retirees filed suit against Erie County, contending
that the health coverage offered to them was inferior to that offered to
retirees under 65, and therefore they were discriminated against based on
section 4( a) of the Age Discrimination in Employment Act (ADEA). 23

The Third Circuit ruled that Erie County treated its Medicare- eligible
retirees differently from other retirees with respect to their compensation,
terms, condition, or privileges of employment because of age, establishing a
claim under the ADEA. The court also ruled that, under the act, 24 the

20 Variety v. Howe, 516 U. S. 489 (1996). 21 In Re Unisys Corp. Retiree
Medical Benefits ERISA Litigation, 957 F. Supp. 628 (E. D. Pa. 1997), citing
In Re Unisys Corp. Retiree Medical Benefits ERISA Litigation, 57 F. 3d 1255,
1265 (3d Cir. 1995), cert. denied sub nom Unisys Corp. v. Pickering, 517 U.
S. 1103 (1996).

22 220 F. 3d 193 (3d Cir. 2000), cert. denied, 69 U. S. L. W. 3409 (U. S.
Mar. 5, 2001) (No. 00- 906). 23 29 U. S. C. 623( a) (? It shall be unlawful
for an employer . . . to . . . discriminate against any individual with
respect to his compensation, terms, conditions, or privileges of employment,
because of . . . age.?)

24 29 U. S. C. 623( f)( 2)( B)( i) provides an exception for what would
otherwise be a violation of the ADEA where ?the actual amount of payment
made or cost incurred on behalf of an older worker is no less than that made
or incurred on behalf of a younger worker.? The implementing regulation, 29
C. F. R. 1625. 10, established what is known as the ?equal benefit or equal
cost? rule. Recent Decision

Raises Age Discrimination Issues Regarding Retiree Health Benefits

Appendix II: Case Law Review of Changes to Employer- Sponsored Retiree
Health Benefits

Page 35 GAO- 01- 374 Retiree Health Benefits

employer could provide different benefits to Medicare- eligible retirees
only if (1) they provided equal benefits to those provided to retirees not
yet eligible for Medicare or (2) the employer?s costs for Medicare- eligible
retirees and retirees not yet eligible for Medicare were equal. The case was
sent back to the trial court for a determination on the county?s compliance
with this ?equal benefit or equal cost? rule.

Appendix III: Benefit Summaries for Selected Medigap Policies

Page 36 GAO- 01- 374 Retiree Health Benefits

The 10 standardized Medigap policies, called plans A through J, differ by
the benefits they provide. However, all 10 plans include the same ?basic

benefits,? including Part A hospitalization coinsurance (days 61 to 90),
lifetime reserve coinsurance (days 91 to 150), 365 extra days of hospital
care, the first 3 pints of blood or equivalent quantities of packed red
blood cells per calendar year that Medicare Parts A and B do not cover, and
Part B coinsurance (20 percent).

Individuals can purchase a Medigap plan with additional benefits, although
the extent to which the 10 plans offer these various benefits differs.
(Table 6 illustrates benefit differences among the three plans for which we
obtained premium rates.) Plan F is the most popular Medigap plan. According
to a HCFA official, plans C and F together represent over one half of all
Medigap sales. Plan H is one of the three standardized plans that include a
limited prescription drug benefit. Under Medigap?s special enrollment rules,
eligible individuals have guaranteed access to four plans, including plans C
and F. In contrast, access to plan H may be subject to medical underwriting.

Table 6: Additional Medigap Benefits for Plans C, F, and H Plan C Plan F
Plan H

Additional benefits X X X Skilled nursing facility coinsurance (days 21-
100) X X X Part A deductible X X X Part B deductible X X Part B excess
charges X a Foreign travel emergency X X At- home recovery Prescription
drugs X Preventive medical care a Plan F covers 100 percent of excess
charges, which is the difference between the doctor?s charge and Medicare?s
approved amount.

Appendix III: Benefit Summaries for Selected Medigap Policies

Appendix IV: GAO Contact and Staff Acknowledgments

Page 37 GAO- 01- 374 Retiree Health Benefits

John Dicken, (202) 512- 7043 In addition to the above staff member named,
Susan Anthony, Carmen Rivera- Lowitt, and Mark Vinkenes made key
contributions to this report. Paula Bonin provided computer programming for
the analysis of the CPS, and Dayna Shah and Roger Thomas provided a legal
review of relevant statutes and court decisions. Appendix IV: GAO Contact
and Staff

Acknowledgments GAO Contact Staff Acknowledgments

Related GAO Products Page 38 GAO- 01- 374 Retiree Health Benefits

Medicare+ Choice: Plan Withdrawals Indicate Difficulty of Providing Choice
While Achieving Savings (GAO/ HEHS- 00- 183, Sept. 7, 2000).

Medigap: Premiums for Standardized Plans That Cover Prescription Drugs (GAO/
HEHS- 00- 70R, Mar. 1, 2000).

Prescription Drugs: Increasing Medicare Beneficiary Access and Related
Implications (GAO/ T- HEHS/ AIMD- 00- 100, Feb. 16, 2000).

Private Health Insurance: Progress and Challenges in Implementing 1996
Federal Standards (GAO/ HEHS- 99- 100, May 12, 1999 ).

Private Health Insurance: Declining Employer Coverage May Affect Access for
55- to 64- Year- Olds (GAO/ HEHS- 98- 133, June 1, 1998).

Implementation of HIPAA: State- Designed Mechanisms for Group- toIndividual
Portability (GAO/ HEHS- 98- 161R, May 20, 1998).

Retiree Health Insurance: Erosion in Retiree Health Benefits Offered by
Large Employers (GAO/ T- HEHS- 98- 110, Mar. 10, 1998).

Retiree Health Insurance: Erosion in Employer- Based Health Benefits for
Early Retirees (GAO/ HEHS- 97- 150, July 11, 1997).

Private Health Insurance: Millions Relying on Individual Market Face Cost
and Coverage Trade- Offs (GAO/ HEHS- 97- 8, Nov. 25, 1996).

Employer- Based Health Plans: Issues, Trends, and Challenges Posed by ERISA
(GAO/ HEHS- 96- 167, July 25, 1995). Related GAO Products

(201060)

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