Saying that skyrocketing medical costs and public policy have rendered retiree health insurance "economically irrational," Watson Wyatt Worldwide Vice President Sylvester J. Schieber is warning you to expect to shoulder more — if not all — of your health insurance costs during your retirement.

Employers' financial support for retiree medical benefits will shrink to less than 10 percent of total retiree medical expenses by the year 2031, under plan provisions already adopted by many employers, according to a study produced by Watson Wyatt, an employee benefits consulting firm. "Retiree Health Benefits: Time to Resuscitate?" blames the erosion of employer-sponsored retiree health insurance on rapidly rising health care costs, growing retiree populations, uncertain business profitability, and federal regulations that discourage employers from pre-funding retiree medical benefits.

The net result of these factors is that the burden on you to pay your own health insurance when you retire is increasing dramatically, says Schieber. "Far too few employees are prepared for these looming changes," he says. Generally speaking, employer-sponsored group health insurance is more comprehensive and less expensive than health insurance purchased individually.

According to Wyatt Watson, large employers currently pay more than 50 percent of total retiree health insurance. However, 20 percent of the employers studied say they have eliminated retiree health insurance for new workers altogether and 17 percent say they will require new workers to pay the full premium for retiree coverage.

Strategies to reduce retiree costs

According to the study, most large employers have already made changes that limit their retiree medical liabilities in one way or another. They include:

• Imposing tougher minimum service requirements in order for workers to receive benefits. In 1984, nine out of 10 large employers that offered retiree health insurance to workers over age 65 required five or fewer years of employment with the company. Last year, only 25 percent offered benefits to workers retiring with five or fewer years of employment. In the future, it's estimated only 14 percent will allow workers to qualify for benefits so quickly.

• Tying the employer's portion of the premium to workers' length of employment at retirement. While 32 percent of the employers have adopted service-related contribution requirements for current post-65 retirees, 72 percent have adopted service-related contribution requirements for future retirees.

• Reducing the average employer health insurance premium contribution from 80 percent for current retirees to 60 percent for future retirees.

• Capping the amount companies will pay toward annual retiree health insurance premiums. About half (45 percent) of employers currently cap contributions for new hires while 39 percent do so for current retirees.

According to the study, as more companies reach their contribution caps, retirees will be forced to pay a much larger share of their health insurance premiums from their own pockets. According to Watson Wyatt, half of post-65 retiree health insurance plans with caps and 42 percent of pre-retiree health insurance plans with caps have already reached them.