In the long run, it’s said, nothing is sure but death and taxes. In addition to those, there’s an increasingly sure thing: no retiree health benefits from employers.
Once considered a “throw-away benefit” in the 1940s and 1950s when there were few retirees, retiree health benefits are an endangered species.
In Implications of Health Reform for Retiree Health Benefits, the Employee Benefit Research Institute (EBRI) details the recent history and impacts of legislation on retiree benefits. Starting with FAS 106, the accounting rule change that passed in 1990, the financial treatment of employer-sponsored benefits negatively impacted access to health benefits for retirees. Consider this one of the ultimate game-changers for General Motors and other companies with large legacy employee populations.
Health reform in and beyond 2010 could further erode the retiree health benefit.
As the chart illustrates, only 28% of employers with over 500 employees offered health insurance to early retirees in 2009, down from 46% in 1993, according to Mercer.
EBRI points out four impacts that could impact retiree health coverage in different directions:
1. In the short run, the reinsurance program for early retirees creates a temporary program for employees who fall through the cracks between early retirement and Medicare eligible age. As this is temporary, it’s a stop-gap measure after which employers have less incentive to provide benefits.
2. Medicare Part D drug benefits are enhanced, improving the attractiveness of the public Rx plan versus employer-based drug plans.
3. Reform’s tax treatment of employer-sponsored health plans could make it more expensive for employers to provide health benefits.
4. In post-retirement, employers might not be able to change health benefit designs. This lack of flexibility could motivate employers to cap contributions, cut benefits of active workers, or totally drop health benefits.
Health Populi’s Hot Points: Since only 1 in 4 employers offer health insurance to retirees today, the benefit-erosion trend has been steady since the passage of FAS 106.
The intention of President Obama has been, from the beginning of health reform discussions, to build on the U.S.’s unique employer-based health insurance system. However, the emerging plan will probably further erode benefits in retirement — at a minimum, during the gap between retirement and Medicare-eligibility.