Sunday, September 8, 2013

IBM Dumps Retiree Health Insurance to Private Exchange

IBM will control the growth in retiree health insurance costs by ending retirees' enrollment in the company's employer-sponsored health insurance plans.  WSJ reported:

International Business Machines Corp plans to move about 110,000 retirees off its company-sponsored health plan and instead give them a payment to buy coverage on a health-insurance exchange, in a sign that even big, well-capitalized employers aren't likely to keep providing the once-common benefits as medical costs continue to rise.

The move, which will affect all IBM retirees once they become eligible for Medicare, will relieve the technology company of the responsibility of managing retirement health-care benefits. IBM said the growing cost of care makes its current plan unsustainable without big premium increases.

IBM will shift the growing cost of care to retirees:

IBM told retirees that its current retiree coverage will end for Medicare-eligible retirees after Dec. 31, 2013, according to documents reviewed by The Wall Street Journal and confirmed by IBM.

"Cost increases under our current retirement group health care plan are no longer sustainable for you," IBM said in the notices. "Health care costs under IBM's current plan options for Medicare eligible retirees will nearly triple by 2020, significantly impacting your premium and out of pocket costs," the notice said.
Instead of subsidizing retiree health premiums directly, IBM will give retirees an annual contribution via a health retirement account that they can use to buy Medicare Advantage plans and supplemental Medicare policies on the exchange, as well as pay for other medical expenses. Retirees who don't enroll in a plan through Extend Health won't receive the subsidy.

Echoing a common move in the pension arena, IBM turned a defined benefit health insurance benefit into a defined contribution plan, one with handcuffs.

Note that IBM received nearly $13 million in Early Retiree Reinsurance Program (ERRP) funds to "keep retiree health insurance more affordable."  Any obligations related to this money disappear on January 1, 2014. 

Cash rich IBM's move means the employer will do less, something I predicted when PPACA passed.  Will IBM's retirees be able to accommodate the extra burden for health care costs during retirement?  That remains to be seen.

Expect more companies, even municipal governments, to follow IBM's move.  Workers should expect to shoulder a greater portion of their retirement and health care.  The latest shedding of employer health insurance should come September 19 via the U.S. Census Bureau's American Community Survey.

Employers, like IBM, will do less, courtesy of Uncle Sam.  I don't trust Uncle Sam's promises to backfill, not given his empty pockets.  Workers are on their own, as evidenced by this recently released Census statistic.

22 percent of households experienced one or more possible "hardships" in fulfilling their basic needs in the previous 12 months. These hardships included difficulty meeting essential expenses, not paying rent or mortgage, getting evicted, not paying utilities, having utilities or phone service cut off, not seeing a doctor or dentist when needed or not always having enough food. 

Many are expected to lose a portion of their Social Security benefits to fund lower corporate tax rates for the IBM's of the world.  That's not justice, but Red and Blue love PEU "Just Us."  PEU affiliates need lower taxes and politicians aim to please. 

Update:  Time Warner Inc. did likewise. Energizer straight out eliminated their retiree health and life insurance benefit.  The City of Fort Worth plans to shift retirees to Medicare Advantage plans as well.  Newport News Shipyard, a division of Huntington Ingalls, shocked employees with their announcement.  An employee said in response, "Their word means nothing.  God knows how much more it's going to cost us."