For many retirees, health benefits are fading away
Robert Greenberg of Paramus, N.J., decided to retire early from Allied Signal because he had seen his father die of cancer before ever having a chance to enjoy retirement. The same had happened to his grandfather.
Greenberg, a former engineering manager who helped build test equipment for F-15 fighter jets vowed not to let that happen to him. He retired about 16 years ago at age 51 with a pension and an employer-provided health insurance package he thought would be with him for life.
"I had a family history of medical issues. That's why I retired early," he said. "I was promised I would be getting medical insurance; it was a big part of my retirement benefits."
The number of companies offering retiree benefits has been dwindling for more than 20 years. According to the 2010 health benefits survey by the Kaiser Family Foundation and the Health Research and Educational Trust, only 28 percent of companies with 200 or more workers that offer health benefits to their employees also offer retiree coverage, down from 66 percent in 1988.
A change in accounting standards spurred a rash of retiree health care benefit cuts beginning in the late 1980s, said Tricia Neuman, vice president and director of the Medicare Policy Project at the Kaiser Family Foundation. Corporations were required to book on their balance sheets their future liability from retiree health benefits, she said, and that affected bottom lines.
"Employers took a number of steps to reduce liability, many of which shift the cost onto retirees in the form of higher premiums or higher cost-sharing requirements," Neuman said. "Some employers have maintained coverage for current retirees but stopped offering it for new hires."
Greenberg was one of many retirees who learned in August that beginning Jan. 1, 2011, Honeywell International which had merged with Allied Signal will no longer provide health insurance for Medicare-eligible employees who retired after July 1992. Their group plans will be terminated, and they were referred to a third-party benefits adviser who is helping them choose individual plans to supplement their Medicare coverage.
Greenberg was diagnosed in 2001 with multiple myeloma, a bone marrow cancer. A very expensive drug, Revlimid, "is keeping me alive," he said. He expects that with the loss of his company-provided drug plan, his out-of-pocket costs will skyrocket to more than $9,000 a year from $400.
Honeywell declined to comment on Greenberg's situation but said in a statement that "retirees will continue to have access to medical insurance and for many at a lower cost." The company said "the independent market offers better and more effective cost options than Honeywell can provide."
Honeywell said in October that third-quarter sales rose 9 percent, to $8.4 billion, but due mainly to pension costs, net income declined 18 percent, to $499 million, or 64 cents a share, from $608 million, or 80 cents, a year earlier.
In the quarter ended Sept. 30, the company recognized severance costs of $64 million related to reductions of 1,188 manufacturing and administrative positions in the company's Automation and Control Solutions, Aerospace and Specialty Materials segments.
By dropping health coverage for many of its Medicare-eligible retirees, it will cut benefits obligations by a one-time amount of $137 million, the company said. In February, Honeywell eliminated a retiree medical plan subsidy for certain union employees who retire after Feb. 1, 2013, to reduce benefit obligations by $39 million.
Honeywell is not the only company making changes to its retiree health benefits.
In 2011, Unilever's U.S. retirees will be shifted to individual Medicare health plans, after retirees lost in recent years company-provided life insurance and dental coverage. Unlike Honeywell, Unilever will continue to contribute to retirees' health coverage. Unilever will deposit $100 a month per participant in individual health savings accounts.
U.S. companies almost always reserve in writing the right to change retiree health plans and when they do, nothing in federal or state law prevents them from cutting or eliminating such benefits. It can be more difficult when union contracts are involved.
Federal health care legislation passed this year will remove one of two provisions in the 2003 law that created Medicare Part D drug coverage that were intended as incentives for employers to continue offering retiree health benefits as availability of Medicare coverage was expanded. A subsidy that covered 28 percent of employers' retiree health expenses remains in place, but related tax deductions will end in 2013.
Kaiser's Neuman said "it is not clear yet" whether the new tax treatment will affect employers' decisions to continue offering benefits.
The health care law also includes a temporary $5 billion reinsurance fund to help employers pay health benefits for retirees age 55 through 64, who do not yet qualify for Medicare. The assistance will be available until 2014, when the option of state-run health exchanges are supposed to be up and running.
"Those younger than 65 can find it difficult to find affordable coverage," she said.
With ongoing cost pressures on employers and rising health costs, "most people would expect to see a continued erosion of employee health benefits."
Retiree advocates believe the removal of the tax break for employers will prompt another round of retiree health plan slashing in coming years.
"Next year they will be dropping like flies; the health care reform has made it easy for companies to drop their plans and blame it on Uncle Sam," said Jack Cohen, a board member for the Association of BellTel Retirees, who also volunteers for the lobbying group ProtectSeniors.org.
Those groups have for years been pushing for federal legislation that would make it illegal for profitable companies to cut retirees' health benefits.
"If we can get this bill passed, we will see it continue for people who were promised they would get it," said Jack Brennan of Hillsdale, N.J., who is chairman of the BellTel retiree group. Brennan started working for Verizon predecessor New Jersey Bell in 1953 at age 17 and was a labor relations manager when he retired in 1991. He said that for most of Verizon's retirees, the company drug coverage plan is better than Medicare Part D.
"The important thing we are trying to do is stop the company from canceling health care in its entirety," he said. "Obama's medical plan has forgotten about retirees. His favorite thing to say was, 'If you like what you have, you can keep it.' But if the company is going to take it away, you certainly can't keep it."
The proposal to require companies to maintain retiree health care programs was to be included in the health care legislation package but "was one of the last items to get cut out," Brennan said. "If we got a few more Republicans to support it, we would have gotten it in," he said.
With the new Congress, he is hopeful the bill will get passed next year. "I think we have a different chance now; we are hopeful we will bring some Republicans to our side of the aisle," he said.
The big and small of it
28 percent of large companies that offer health benefits to their employees also offered retiree coverage this year, down from 30 percent in 2009, 34 percent in 2005 and 66 percent in 1988.
Big businesses (200 or more workers) are much more likely to offer retiree health benefits than small companies 28 percent versus 3 percent.
Large companies with union workers are more likely to offer retiree health benefits than large businesses without union workers 41 percent versus 21 percent.
Large firms with more older workers (35 percent or more are age 50 or above) are more likely to offer retiree benefits than large businesses with fewer older workers (less than 35 percent are age 50 or older) 34 percent versus 25 percent.
93 percent of big companies that offer retiree health benefits offer them to early retirees (under age 65).
75 percent of large businesses offering retiree health benefits offer them to Medicare-age retirees (65 and above).
Source: Kaiser/HRET, "Survey of Employer-Sponsored Health Benefits, 2010"