Retiree Health Benefits in the Recession

“Companies are concerned about how their balance sheets are going to look after two down quarters last year, the events of Sept. 11 and the big increases we've been seeing in health care costs,” the U.S. Chamber of Commerce’s Kate Sullivan told the New York Times in 2002. Reading the tea leaves, Sullivan pointed out that “employers are looking at any way they can to shave off some of those costs”—and that one of their biggest targets were company-sponsored health benefits for retired employees.

Today, six years later, the article's headline—“Retiree Health Benefits Dwindle Amid Recession"—should appear in bold type on the front page of the Times.. In many ways 2002 was part of the good old days, before another half-dozen years of health care inflation culminating in our current, brutal recession. If businesses felt inclined to spend less on retirees’ health benefits back then, today they are even more likely to cut back. .

Indeed, in a recent survey, the Commonwealth Fund found that 53 percent of private employers plan on increasing retirees’ shares of their health care premiums over the next two years. Forty-three percent say they will be increasing cost-sharing for drugs; 19 percent intend to drop retiree benefits for new hires, and 20 percent of companies plan to drop company-sponsored health benefits for active workers or existing Medicare-age retirees. In other words, employers are trying to lighten their load.

Retiree health care is a  particularly tempting target because it stands at the center of corporate America’s  most expensive benefits. In November, the Employee Benefits Research Institute (EBRI) reported that, by 2007, retirement benefits accounted for 47.7 percent of the total spending for benefits, while health benefits had increased to 42.8 percent of total benefit spending. Other benefits” (unemployment insurance, life insurance, and workers’ compensation) accounted for just 9.5 percent of companies’ benefit expenses.

In September, when William Jones, of the organization Protect Seniors, testified before the House Committee on Education and Labor, he described how some companies are taking a hatchet to retiree health care.  For example, Aetna hs stopped subsidizing health insurance for employees who retire after 2007; DuPont Co. “now charges pre-Medicare retirees higher health insurance premiums than it charges current employees”; Sears will eliminate all retiree health subsidies for new hires and employees younger than 40; and the Tribune Co. “has stopped subsidizing retirement health benefits for those hired after March 2003.”

These are not isolated cases. Companies been distancing themselves from retiree health benefits to such an extent that today, according to the Kaiser Family Foundation, only 31 percent of large private employers (companies that have 200 or more workers) offers retiree health benefits to supplement Medicare for former employees 65 years and older. In the 1980s, two-thirds of all companies provided this rich benefit.  As for small firms,: only four percent of firms employing less than 200 people offer health benefits for retirees.

The situation isn’t entirely hopeless; unions do help. Kaiser found that 46 percent of all large firms with union employees offer retiree health benefits, compared to just 24 percent for all large firms with no union employees. But in today’s economy, a unionized workforce is still no guarantee of secure benefits.

Just look at the automakers: In their first appearance on Capitol Hill in November, General Motors, Ford, and Chrysler asked Congress for $25 billion in federal loans to help cover future health care payments for retirees. At the close of this year, General Motors will cut health care for about 100,000 of its white collar retirees—assuming the auto industry is still in a position to make any independent business decisions by the end of ’08.. 

The recession is clearly a game-changer, and it’s already hitting seniors harder than anyone could have predicted. In a recent op-ed in the San Diego Union-Tribune, Richard Johnson, a research associate at the Urban Institute in Washington, D.C notes that “the senior unemployment rate grew by a mere 0.8 percentage point over the course of the 1981-1982 recession,” but that “last month, 298,000 Americans ages 65 and older were unemployed, 50 percent more than when the recession began a year ago.”

Older Americans are more vulnerable than ever, and millions of them find themselves entering early retirement, a position which leaves them outside of the company health care plan while being too young for Medicare. Sadly, most retire early because of health issues. In April, EBRI found that, “[a]mong retirees who left the work force earlier than planned, more than half (54 percent) say they did so because of health problems or disability.” Another 44 percent of all retirees “say they have spent more than expected on health care expenses”—which, according to Johnson, eat up about 15 percent of the average retiree’s budget.

Thus it should come as no surprise that the proportion of retirees “not at all” confident that they will  have enough money to take care of their medical expenses increased by 67 percent between 2005 and 2008. Over this same period, the proportion of retirees who are “very confident” that Medicare will continue to provide benefits equal to what they get today dropped by 60 percent. (And keep in mind that this survey came out in April, before the real meltdown.)

It’s safe to say that retirees are even more pessimistic today—and  no doubt, they are more frightened than they were in 2002. They should be. Back then, companies had less legal leeway to cut health benefits for retirees than they do today. In 2000, a federal court decided that companies with health plans and retirement plans had to offer health benefits to Medicare-eligible retirees that were equal, cost-wise, to those received by active workers.

But in December 2007, the Equal Employment Opportunity Commission (EEOC) ruled that employers are allowed to reduce or eliminate health benefits for retirees when they turn 65 and become eligible for Medicare. In other words, companies can now offer retirees stingier plans than they do workers, if they offer any at all. Opponents of the decision (including the AARP) pushed for the U.S. Supreme Court to review EEOC’s ruling, but in May of this year the High Court officially declined to look at the case.

For its part, Congress has repeatedly made gestures—and little else—to try and protect retiree health benefits over the past few years. Since 2000, legislators have introduced the Emergency Retiree Health Benefits Protection Act five times (four in the House, once in the Senate), and it’s never been passed. The Act would create a program for emergency retiree health benefit protections and prohibit post-retirement health care reductions. The newest iiteration of the bill is currently languishing in committee. It  will be stricken from the books if it’s not passed before the new Congress convenes in January.

Oddly enough, this might be all to the good. In today’s economy, it’s tough to view the retiree health benefits issue as purely a question of greedy corporations skipping out on their responsibilities. Many of the employers pulling out of the retiree health care game are themselves struggling to stay afloat. Think about the automakers, or some of the employers mentioned in Jones’ House testimony—such as the Tribune Co., which saw Chicago Tribune go bankrupt this week, and Sears, whose profits are 62 percent lower than they were a year ago. Times really are tough for everybody—even corporations—and putting more pressure on employers to pay out health benefits probably isn’t the way to go.

A better option would be to address the core issue:  U.S. health care costs too much . Instead of punishing employers or leaving retirees out in the cold, we should improve Medicare (see Maggie’s prescription for how to do so here). We also must tackle the root causes driving an egregiously expensive health care system:  the overuse of unproven medical technologies, a lack of evidence-based medicine, and a reimbursement system that rewards volume over quality.

Should we, at some point, ask more of employers when it comes to retiree health benefits? Perhaps—but it’s counter-productive to do so without making an effort at addressing the systemic failures within U.S. health care.

Ultimately, the collapse of retiree health benefits is a large problem—and a solution will require more than one piece of legislation. Perhaps Medicare needs to be expanded to fill in some of the holes now covered by employer-sponsored health benefits. But we also need to take a hard look at those areas where Medicare coverage is overly-generous, covering overpriced and unproven products and services.

Seniors who have worked hard all their lives deserve the best health care possible. We just need to keep in mind that this doesn’t necessarily mean the most expensive care possible. 

Comments

[muthu]

This is very nice information's about health benefit. each an d every points should be a more informative. thanks for sharing. Cheers...........
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Muthu

MLS

[Allene E. Swienckowski]

So...let me get this straight. US Senators and Congressmen get the very best healthcare we can offer and yet the average US retired worker can only expect to pay higher insurance and prescriptions fess with lower and limited income, right? Why?