Health Coverage in Retirement Presentation at Citizens’ Health Care Working Group by Gerry Smolka, Senior Policy Advisor AARP Public Policy Institute July 26, 2005 Houston, Texas

Health coverage in retirement  Central role in facilitating access to needed services and providing financial protections  Issues for early retirees  Issues for retirees eligible for Medicare

Importance of health coverage in later years  Health care needs (service use) increase with age, on average  Ability to absorb and recover from the financial costs associated with major health care needs is constrained for non- workers

Source of health insurance for ages in 2003 Source: AARP Public Policy Institute analysis of the Current Population Survey, March 2004 Supplement.

Number of persons age with no health insurance is increasing Source: AARP PPI analysis of Current Population Survey, March 1990, 2000, 2003, 2004

Early retirees are different from other year olds in how they get coverage in 2003 Source of Insurance* RetiredNot Retired All Employer coverage:58%71%70% In Own Name38%55%53% As a Dependent20%17% Other Private12% 6% 7% Public**14% 9%10% Uninsured16%13% * This is the primary source of insurance. Some people may have coverage from multiple sources. ** Includes Medicare, Medicaid, and VA or TriCare coverage. Note: Columns may not total 100% due to rounding. Source: AARP PPI analysis of Current Population Survey, March 2004.

Issues for early retirees  Unless disabled, not generally eligible for public coverage, even if have low-income  Individual insurance market can be particularly difficult for this age group to access and afford -More likely to have existing health problem which could prevent them from getting coverage or could result in inadequate coverage -Rating practices may put cost of coverage beyond their means (premiums can look like mortgage payments)

2005 monthly premium in Texas high-risk pool in the Houston area for male non-smokers DeductibleAge 55Age 62 $500$994$1435 $1000$729$1057 $2500$491$713 $5000$395$572 Source: July 20, 2005www.txhealthpool.org

Issues for early retirees  Early retirees fortunate enough to have retiree health benefits may also face challenges -Premium contribution and cost-sharing take a growing bite from their pension Between 2003 and 2004, the Kaiser/Hewitt survey of large private employers’ retiree health benefits showed: 79% increased retiree premium contributions 68% increased dependent premium contributions 45% increased co-insurance/co-payments -Employer may stop offering coverage

Percentage of persons age who are retired, 1995 and 2003 Source: AARP PPI analysis of Current Population Survey, March, 1996 and 2004.

Number of early retirees has been decreasing in recent years  2002 AARP survey of workers age 45+ found that 69% said they want to work beyond usual retirement age  76% of these respondents stated a major reason they continue to work is because they need the money  65% of these respondents also stated a key reason they continue to work is to maintain their health insurance

Issues for Medicare-eligible retirees  Because of Medicare, the number of uninsured adults age 65 and over is less than 1%  Retiree benefits to supplement Medicare are valued because Medicare only pays about half of health care expenses of older adults - These benefits provide help with Medicare cost- sharing and costs not covered by Medicare (e.g. drugs, dental)

Out-of-pocket spending on health care depending on source of supplemental coverage for 65+ Medicare beneficiaries, 2003 Source: AARP PPI analysis using the Medicare Benefits Model, V.5.306

Issues for Medicare-eligible retirees  Retirees being asked by employers to absorb health care cost increases (premiums, cost-sharing)  Medicare premiums rising  Some find they can no longer afford their retiree health benefit  Future retirees are less likely to have health benefits

Issues for older adults  Surveys show that concern about the cost of health care is seen as a major challenge facing people older than age 55 - Ranks second to concern about financial security after retirement

Estimated retiree health savings need is high, even without LTC Age at Time of Death Medigap + Parts B & D + $500 Out-of-pocket Drug + $2850 Out-of-pocket Drug 80$58,000$66,000$114,000 85$82,000$95,000$169,000 90$110,000$129,000$235,000 95$142,000$168,000$315, $179,000$213,000$411,000 Savings needed for Medigap coverage at Age 65 in 2004 at 7% health inflation. Source: EBRI presentation to AARP, Fall 2004

Issues for older adults  Access to health care and benefits in their later years is an economic and emotional issue for older adults  Individuals are no better prepared to absorb rising health costs than are employers and governments

Issues for older adults All individuals, including older adults, could be helped when the country finds ways to:  Address the problem of rising health care costs, and  Assure universal access to health coverage