Some 80% of elderly Medicare beneficiaries have private supplemental insurance. Approximately 50% of these have some form of medigap of privately purchased coverage. Those holding private coverage tend to be younger, more highly educated, and white. Women are more likely to hold medigap type plans, and men are more likely to have employment related coverage. The extent of multiple coverage is relatively rare. One estimate puts multiple coverage at about 20% of those with private supplemental coverage. Contrary to conventional wisdom, those with multiple coverage are not the very old and poorly educated. Rather, they tend to be younger and more highly educated. Also, women are more likely to have both employer-sponsored and medigap coverage, maybe because of the uncertainty about whether a wife will continue to have employer-sponsored post-retirement coverage after her husband has died. Medigap-type health insurance is heavy on first dollar coverage; the Medicare deductibles and copayments are covered. Provisions of OBRA 1990 will homogenize this coverage even more. Employer-sponsored health benefits are common. Some 8.4 million elderly Medicare beneficiaries have employer-sponsored coverage. A large but undetermined number of early retirees also have coverage. These recipients have generally been the workers in very large firms. However, the future will not look like the past. Two thirds of current workers are promised health benefits upon retirement. The benefits provided under these plans are both broad and deep. The nature of benefit coordination between these plans and Medicare can reduce the size of the apparent benefits. The carve-out method of coordination is the most common and can result in sizable out-of-pocket payments by the beneficiary. However, it is not obvious that employer-sponsored plans have been designed to exploit this opportunity. There is little information on the conditions under which a worker is vested for health benefits. The sketchy evidence that does exist suggests that a worker must retire from the firm and have had time in service about equal to that required for the firm's pension plan. Firms apparently can change their retiree benefit plans if they have explicitly retained the right to do so. There are sound economic reasons to suggest that many firms would honor their commitments, even in the absence of legal requirements. Supplemental retiree coverage leads to additional use of health services, particularly by those in poorer health and particularly by those with plans that feature first-dollar coverage. The increased use of services as a result of supplemental coverage also increases Medicare's costs. In fact, Medicare effectively subsidizes the claims costs of supplemental plans for Medicare covered services. Over the next decade, the nature of retiree health benefits will change significantly. Employers are likely to continue to honor the bulk of their promises for retiree benefits. As a result, the importance of medigap coverage will decline as current workers retire with employer-sponsored coverage. The benefits offered will also change, but not dramatically. Utilization review and managed care will become more important factors. However, in the absence of income tax law changes, health insurance benefits of all types will continue to be actively used as a form of untaxed compensation. Promised retiree benefits are simply another way of providing untaxed scompensation to current workers and should be expected to be both continued and honored.
