Years ago when your dad retired, he may have walked away from the company-sponsored retirement party with a pension, medical insurance, and a gold watch. If he worked for a larger company, he may have been invited back from time to time to mingle with his former co-workers at retiree parties held at the corporate offices and paid for by current management.

Times (and costs) change, and as your employees prepare to hop into the RV and head off down the road to retirement, they may expect a different set of benefits. Or, depending on how well you’ve communicated your intentions, they may not.

Retiree Benefits Increase Significant

"There’s a lot of turmoil right now in retiree benefits," says Steve Eschbach, a consulting actuary at Milliman & Robertson in Denver. "Retiree benefits are continuing to increase in cost at significant rates, especially with [the cost of] prescription drugs escalating."

Adding to the turmoil, according to Eschbach, is the recent decision by some managed care and "Medicare+Choice" HMOs to leave their service areas, which, he says, leaves some retirees without the opportunity for low-cost benefits. In fact, at least 115 health insurers, covering 930,000 elderly or disabled Americans, will drop their Medicare HMO plans as of December 31, 2000. That figure nearly triples the number who pulled out in 1999.

In their continuing quest for cost (and liability) reductions, many employers decide to reduce or eliminate their contributions toward retiree benefits. This may sound simple, but if it is done haphazardly, it can cost you in the long run. Experts caution that litigation is not unusual on behalf of retirees against their former employers. And, as their ranks grow, so does their collective voice.

Proceed with Caution

Some employers feel that keeping retirees’ good will is one way to avoid problems, and they may do that by hosting "retiree parties" and brown-bag lunches or by publishing a retiree newsletter. Others find that keeping the retirees unified in this way encourages them to mobilize as a group and so avoid potential problems.

Whichever way you choose to go, proceed with caution. Be sure your decisions reflect your current and past communications. If your company has historically promised a particular group that they will always have free health insurance, you may be locked in.

Of course, you have more control over the costs for those who have not yet retired. Eschbach sees three tiers of retirees. "It’s clearly easier to take away from those people who have not retired and are far from retirement," he says, "than from those people who have not retired and are close to retirement, than from those people who have retired."

Prescription Drugs

Prescription drug costs may be more of a concern for your retiree population than they are for active employees.

When prescriptions are offered on a co-pay basis, participants actually have an incentive to use a prescription drug rather than an adequate over-the-counter remedy.

One example is seen in a study of a heavily advertised prescription medicine that is intended to cure stomach ulcers. The study found that 75 percent of the population who used the drug did so for at least a year, rather than its recommended three months, possibly because it allows the patient to eat whatever they want without suffering from minor stomach upsets.

While some could be using chewable tablets costing a few dollars per bottle, they simply refill their $100+ per month prescription using their co-pay.

Not only does this and similar practices drive up the costs of prescription drug coverage, it may encourage poor eating habits and delay diagnosis of underlying conditions in those who misuse it.