A New Twist on Retiree Health Care

Instead of ending coverage, some companies are turning it into a 401(k)-like perk

The nation's pension crisis, it turns out, is only the second-largest long-term liability facing U.S. businesses. Far greater are underfunded health-insurance promises to current and future retirees. The companies that make up the Standard & Poor's 500-stock index are an astonishing $321 billion shy of what they need, according to senior analyst Howard Silverblatt at Standard & Poor's Corp. (which, like BusinessWeek, is owned by The McGraw-Hill Companies). By yearend the Financial Accounting Standards Board is likely to require companies to put this liability on their balance sheets, a step that could shrink shareholder equity by as much as 9%.

Many companies have been trimming those costs by dumping retiree health care entirely. In 1993, 40% of large employers offered such benefits to those over 65. By 2005 just 21% did, says Mercer Human Resources Consulting.

But rather than drop benefits altogether, "a lot of clients are saying: 'Let's re-engineer our retiree (health) plans,"' says Edward Kaplan, national health practice leader at consultants Segal Co. A small but growing number of companies are trying one new approach: transforming retiree insurance into a 401(k)-type perk. Instead of promising to pay, say, half of a retiree's premiums, no matter how costly, these companies are setting aside a fixed amount for each pensioner's medical care. After that, retirees are on their own, even if costs top what's in their account. [ read full article ]

In History City's retiree health care a problem from the start

It was just before Christmas 1983 when Duluth's risk management officer, Bob Healey, told city councilors that a policy allowing retirees to bank unused sick leave to cover medical costs -- a common practice then -- had become an unfunded liability to the city.

In other words, the city could end up owing millions more than it had. New government accounting rules would require the city to put the liability on its books, drastically affecting how it could borrow money.

Mayor John Fedo's solution, which came out of negotiations with all of the city's collective bargaining units, was to make benefits free for nearly all retirees, dozens of whom crowded council chambers. The council discussed the matter at four meetings in December 1983 and January 1984.

That solution has mushroomed into a $300 million-plus unfunded liability that threatens to crush city finances for years to come.

"Does this sound like deja vu all over again? Yeah, it does," said local contractor Arno Kahn, who served on the City Council at the time.

In an effort to understand and explain the events leading to the city's financial crisis, the News Tribune spoke with key players and reviewed documents from late 1983 and early 1984. The catalyst was a contract change with city labor unions providing retirees and their spouses with free lifetime health care. [ read full article ]

Health Care Costs Comparison Tools A Market under Construction.

With the advent of consumer-directed health plans, individuals are being asked to shop for health care products and services, but they are often not provided with the tools to make such choices in the most informed way. A number of online tools can help consumers research the cost of the medical services they receive.Consumers are acutely aware that health care costs are rising. [They] are also struggling with the complexity of health-related decisions. The two decisions that the largest portion of consumers (65% each) say is complex are selecting a health plan and selecting a type of health coverage. Only about 10% have researched the cost and/or qual¬ity of doctors and hospitals in the previous 12 months, either online or offline. However, of those who have done such research, more than half tapped online resources.

Insured consumers have not significantly used the tools at their health plans’ Web sites, results show. Only 29% had visited such sites in the pre¬vious 12 months, and of those, the tool they most often used there (67%) was one for choosing a pri¬mary care physician. Fewer had used cost or qual¬ity comparison tools to track health care expenses (47%). Fewer than half thought the cost and qual¬ity tools were useful.
Consumers who use online resources to research provider cost or quality tend to be more urban, educated, and affluent than those who do not. They are also more technologically savvy .Consumers who take prescription drugs are highly cost-sensitive regarding their medications. However, few drug takers actually compare infor¬mation about prescription drugs or use online tools to investigate prices. Only 9% have compared information about two similar prescription drugs online, and only 6% have looked for the best pre¬scription drug prices online. [ read full article ]