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Health Insurance & Affordable Care Act

Retirees' Health Costs Keep Rising

Higher Prices Begin to Threaten Future Retirees' Benefits, Analysts Say

The Medicare Factor

Prescription drugs continue to represent the largest overall contributor to rising health costs, though it remains unclear how employers will react when the federal government starts paying part of the costs of seniors' medications through Medicare in 2006.

Some analysts worry that federal subsidies combined with rapidly rising insurance costs could cause many employers to abandon private drug coverage for workers altogether. But Tuesday's survey seemed to show that few employers -- at least right now -- plan on discontinuing their coverage next year, experts say.

Six in 10 companies say they plan on accepting a new Medicare subsidy designed to help them keep existing drug coverage for former workers. Only 8% say they plan on dropping their private coverage, while 13% say they did not yet know.

That finding could be a comfort to retirees who risk losing private drug coverage in favor of a less generous Medicare benefit. But Medicare has not yet released final regulations that are likely to heavily influence how private companies react.

In addition, few employers have begun the process of analyzing drug plans in detail. When they do, the picture could change for retirees seeking coverage for prescriptions in 2006.

"There isn't so far a stampede [by private companies] away from coverage because of [Medicare] drug benefit," Altman says. But he added, "I wouldn't take any conclusions to the bank until we have some real experience."

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