Many Canadian organizations are examining whether they can continue to afford offering the same level of postretirement health care coverage as they have in the past, according to a new study by Hewitt Associates.

As a result of economic constraints, many are considering new cost-containment measures that will have a significant impact on the level of postretirement health care coverage that employees receive in the future.

Hewitt’s survey of 218 Canadian organizations reveals that of the companies that currently offer postretirement health care benefits, only a small number, just 4%, say they intend to eliminate them entirely. However, over half — 57% — say they plan to reduce the level of benefits over the next three years.

Most companies, 95%, said the rising cost of healthcare was one of the top three reasons for reducing postretirement health care benefits. Two-thirds, or 67%, cited accounting costs, and 43% said the large number of employees planning to retire in the next decade will make them more likely to reduce benefits.

Hewitt highlighted two primary health care issues that are impacting Canadian organizations’ decisions to alter the level at which they offer postretirement health care benefits.

The provinces continue to cut back retiree health care benefits. More than half, 55%, of companies absorb the additional costs brought on by cutbacks in provincial health care benefits, however, only a quarter said they plan to absorb future costs.

The possible arrival of two-tiered health care is causing considerable uncertainty for organizations. While the majority, 63%, of companies have not decided how they would respond to making private health care available to Canadian employees, more than half, 59%, of those who have decided say they do not intend to cover the costs of private health care under any circumstance.

In order to address these pressures, organizations that said they will reduce retiree health care benefits in the next three years plan to take the following steps:

  • Stricter eligibility requirements;
  • Reductions in medical coverage;
  • Increased cost-sharing; and
  • Increased flexible retiree benefit plans.