America’s biggest employers, from GE to IBM, are increasingly moving retirees
to insurance exchanges where they select their own health plans, an historic shift that could push more costs onto U.S.
taxpayers.
Time
Warner Inc. (TWX) yesterday said it would steer retired workers toward a
privately run exchange, days after a similar announcement by International
Business Machines Corp. General
Electric Co. (GE) last year said it, too, would curb benefits in a move that
may send some former employees to the public insurance exchanges created under
the 2010 Affordable Care Act.
While retiree health benefits have been shrinking for years, the newest
cutbacks may quickly become the norm. About 44 percent of companies plan to stop
administering health plans for their former workers over the next two years, a
survey last month by consultant Towers
Watson & Co. (TW) found. Retirees are concerned their costs may rise,
while analysts predict benefits will decline in some cases.
“Things are going to change dramatically,” said Ron Fontanetta, a partner at
New York-based Towers Watson, which advises GE and other large companies. “Over
the next two to three years, we see a much more aggressive rethinking of what
employers are going to provide.”
The adjustments come as insurers have increased access the past few years to
Medicare Advantage plans that provide benefits beyond the U.S. government health
program for the elderly. Additionally, the health-care law promises to make it
easier for those younger than 65 to buy insurance that’s guaranteed and
subsidized by taxpayers.
Private Exchanges
The private exchanges are designed to join with companies to find the best
deals for the former workers. The public exchanges established under Obamacare,
set to open Oct. 1, were created to provide insurance for millions of uninsured
Americans. In both cases, enrollees will be able to select from a menu of
private health plans.
Companies argue that many retirees can find more choice and a better deal on
the exchanges, said John Grosso, head of the retiree health task force at Aon
Hewitt LLC, a Chicago-based consultant. Instead of taking a one-size-fits-all
company plan, a healthier retiree might find a less expensive policy with a
higher deductible, or one that saved money by favoring generic drugs, he said in
a telephone interview.
Less healthy workers or those who need more comprehensive coverage may not
fare as well, Grosso said.
‘Gold-Plated’ Plans
“Some of them may not be as well off because they had a really gold-plated
plan, but others who are paying a meaningful contribution to their own plan now
can right-size the coverage,” he said.
At the same time, retirees have expressed concern that subsidies provided by
companies in private exchanges may not keep up with rising medical costs,
potentially putting them at financial risk in the future. And an influx of
retirees could put added pressure on public exchanges that provide
taxpayer-supported subsidies.
Retirees aren’t the only ones feeling the pinch. Last month, United Parcel
Service Inc. told workers it would no longer provide health care for 15,000
spouses who can get benefits through their own employer. The company cited
rising medical costs in general as well as the added expenses and new insurance
options created by the health law.
IBM’s Decision
IBM
(IBM) said last week it will shift about 110,000 Medicare-eligible retirees
to Tower Watson’s Extend Health, the largest private Medicare exchange. Former
workers will find more options than the business could provide through its own
plan, IBM, the third-largest U.S. employer according to data compiled by
Bloomberg, said in a statement e-mailed Sept. 7. Caterpillar Inc. and DuPont Co.
also have moved Medicare-age retirees onto the Extend exchange.
For most, coverage will come “at the same or lower cost” than they pay now.
The Armonk, New York-based company will still make contributions to a tax-free
health retirement account for the workers.
IBM capped its subsidies to retirees in the 1990s and “didn’t make this
change to save money,” Doug Shelton, a spokesman, said in an e-mail. “It does not
reduce our costs.” Rather, the company is making the change to help former
workers, whose premiums and out-of-pocket charges are projected to triple by
2020 under the current plan, Shelton said.
Ted Greenberg, 69, worked for IBM for 39 years and retired in 2007. He said
he wasn’t sure what the changes would mean for his family and worried IBM will
follow the lead of competitors and eliminate health-care subsidies altogether.
Subsidies, Stipends
“A couple of them basically did away with all subsidies and stipends and said
to the retirees, ‘You’re on your own.’” Greenberg, a former director of billing
and contracts, said in a phone interview. “Given the trends in the industry, I
am concerned.”
Retiree coverage has been dwindling since the early 1990s, as health-care
costs increased and changes to accounting standards forced companies to declare
future health-care liabilities. Only about half of large employers still provide
the benefit, a decrease from 80 percent two decades ago, Aon Hewitt’s Grosso
said.
Already, many companies exclude new hires from retiree benefits and cap
contributions to covered retirees, said Paul Fronstin, a researcher at the
nonprofit Employee Benefits Research Institute in Washington. At the unionized or public-sector employers where
the benefits are more common, “they’re dealing with the same cost pressures,” he
said.
Limiting Participants
General Electric said last year that it would close its retiree plan to new
entrants starting Jan. 1, 2015. The Fairfield, Connecticut-based company has
established a call-in line and other resources for former workers who’ll be
buying their own insurance after that point, said Seth Martin, a spokesman.
“We continuously assess our benefit programs to strike a balance among
employees, retirees, investors and our ability to compete,” Martin said by
e-mail. “The changes we made to our post-65 retiree health coverage are
consistent with national trends in employer-sponsored retiree health plans.”
The change hasn’t come without controversy. Retirees feel GE “stripped them
of something of substantial value that they believed they earned,” Dennis
Rocheleau, 71, a former GE labor negotiator, wrote last year in a letter to the
company’s board. Rocheleau, whose benefits were unaffected, said the company
should reconsider.
“They’re saving
millions of dollars and the people they’re taking it from are the ones who can
afford it the least,” Rocheleau said in an interview.
To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net
To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net