July 6, 2006—The July 5, 2006 edition of The Wall Street Journal reports that health care costs, already on the rise, will continue to climb, meaning an increased expense to both retirees and workers. Two new studies produced by Milliman Inc and Watson Wyatt Worldwide indicate that prices will continue to escalate and that employers will cut back on retiree medical benefits in response to the growing expense.

The average yearly cost of PPO medical care for a family of four has been on a steady incline—even accounting for inflation—since the 1990s, but it shot up 9% in the past year alone, Milliman reports. Milliman also analyzed and compared the average cost of health care in major US cities; New York City ranked most expensive, Dallas least.

The Watson Wyatt study looked at employers’ responses to rising prices. Out of 164 companies surveyed, 14% plan to eliminate benefits for future retirees, and 6% will cut benefits to current retirees. Also, 24% will tighten eligibility requirements, 50% will restructure plan design, and almost two thirds will increase retiree contribution.

Fidelity Investments now estimates that a 65-year-old couple retiring without employer-provided health benefits will need $200,000 to cover out-of-pocket expenses during retirement.

—Cat Vasko