Sign of the Times?

[Independent]

When the UPS truck pulled up today I assumed I'd be getting an Amazon order. But the "box" was a flat cardboard container that seemed empty. Inside, I found one piece of paper with my former employer's letterhead. That had to be bad news.

Sure enough, the letter went "blah, blah, blah, bad economic conditions, blah, blah, can no longer afford to subsidize retiree health care, blah, blah".

This isn't going to bankrupt us. When I retired 30 months ago at age 59 I knew that retiree health benefits aren't guaranteed. I also knew that the company had formally put a cap on the dollar amount it would spend per year on retiree health. With inflation, that cap would start eating into the company contribution in a few years. So losing the benefit was in my contingency plan (and, they are providing a lump sum check for two years of subsidy to ease the transition).

But I was surprised that it happened this quickly. The company was healthy enough to pay employee bonuses (not of the Wall Street variety) for 2006 and 2007. They had been encouraging early retirement, partially with a strong retiree health plan. So this was quite a turn-around. I figured they were in better shape than GM, but I expect that the economy really is hitting them.

At any rate, dropping health coverage for currently-retired folk used to be extremely rare. I'll be watching the news more closely in the next few months to see if I can spot any others like this. Some people have said that Obama can't move on a new health care plan until the economy gets better. Others say that this is the best political moment because more people will lose coverage due to unemployment and corporate cut backs. Interesting times....

 

[samclem]

Ouch. So, when you retired you had 6 years before reaching Medicare eligibility, right? And it has been 2 1/2 years since then, and they've given you a check for two more years worth of their subsidy, so you'll be entirely on your own for about 1 1/2 years, right? Do you get to stay under their plan (at the same cost) but you have to pay all the costs, or do you have to go out and get your own policy?

Best of luck.

 

[bbbamI]

Wow, sorry to hear about your bad news.

About 20 years ago, my DH's MegaCorp provided health insurance benefits for the retired folks. They just had to pay a few bucks a month. Now, the last I heard, the cost to the retiree is about $250 a month for two people.

About 10 years ago, MegaCorp stated new hires would not receive any type of health benefits at retirement age. Thankfully, this does not affect us.

DH will be receiving his pension and health benefits in May, 2009. At this point, we have $500 per month in our budget to pay health insurance subsidized by MegaCorp. I just hope it's there and we don't lose it...

 

[ziggy29]

Totally sucks. My opinion is that most business today can't afford to keep making these promises, but they should keep the ones they already made.

Agreed about the interesting times about health care reform. On one hand a crappy economy makes it hard to ram through new programs that require more taxes, but on the other if many people are losing coverage (or even fear it) the iron is hot, so strike it.

I'm of decidedly mixed feelings about it.

 

[dex]

I'm sorry about hearing about your loosing the retirement health benefits.

On the other hand my guess is that relatively few retirees get get company paid health benefits in retirement. (I can understand it if it was an early retirement and the company was bridging health benefits until medicare kicked in.) I think it was the sign of the times in the 80s that people lost these type of benefits.

Don't count on Obama's health plan anytime soon. I would guess it would take 3 to 4 years from proposal, research, discussion, voting, planing, establishing gov't agency to oversee, enacting and phasing in.

 

[Midpack]

Sorry to hear about your plan change. I lost my retiree health care benefit (and pension) in 1994 at age 40. In a sense they did me a favor in that I've been plannning on no pension or retiree health care since then. There is no question IMO it's going to disappear as a benefit in private industry, just a matter of time. Like it or not, it's a "promise" many companies simply can't keep and stay in business. I doubt many companies anticipated an economy like 2008-09...

 

[thefinancebuff]

Sorry to hear about that. Sign of time indeed. Technically it's not a promise. It's a program that went on year by year until now.

 

[SteveL]

I hear Starbucks includes health insurance if you work at least 20 hours a week....

 

[Gone4Good]

I'd expect more of this to come. Retiree health benefits are an entirely unfunded, and, in most cases, completely discretionary, corporate expenditures. Meanwhile corporations are just now going through their calculations on the funded status of their pension obligations. The numbers are going to be horrendous. Not only have the assets in the plans shrunk by ~20-30%, but the liability side has grown significantly because the discount rate used to calculate the present value has plunged with treasury yields. A double whammy that will likely leave pension plans only 60% funded, on average, when they release this year's 10-Ks. Making up the shortfall will cause a hit to both corporate earnings and cash flow for years to come. One of the places they can make up the difference is by eliminating discretionary expenditures, like retiree health benefits.

Indeed, a sign of the times.

 

[Rich_by_the_Bay]

Hope it's loss of subsidization only, and that you still have access if you pay the premiums on your own.

Health insurance premiums are usually deductible if you have sole proprietor earnings, don't forget.

 

[tangomonster]

I hear Starbucks includes health insurance if you work at least 20 hours a week....

And that is harder to come by than you might think! Even before the economy crashed, it was documented that many Starbucks managers deliberately made sure that employees worked less than 20 hours so health insurance wouldn't need to be provided (thus enhancing that particular store's bottom line profits).

So sorry, Independent. What a Christmas gift from your former employer! But congratulations on being prepared for this, intellectually, emotionally, and financially. And see if you can continue it by converting it and paying the premiums yourself....

 

[Bikerdude]

Sorry to hear that. I am also concerned that my employer will opt out of health care for retiree's. I have 4 yrs to go for MC so I would be pleased if they provided a cash settlement if, in fact, they do cut.

When I was working the company would provide an annual "compensation" statement. In it they listed retiree health benefits as part of my "total" compensation, so to take it back is really asking for part of my pay back IMO.

What type of business is your former employer in?

 

[Midpack]

I hear Starbucks includes health insurance if you work at least 20 hours a week....

Enjoy it while it lasts, business history is littered with companies that thought they could avoid layoffs and provide premium pay and benefits forever (remember when IBM was employment nirvana, or GM for that matter, or read the history of Wang Labs). The market will dictate otherwise eventually no matter how bulletproof a business seems to be and no amount of intervention by anyone, not even the gubmint can change the business cycle...

 

[Independent]

Thanks for all the responses. Like I said, I had a "contingency" for this before I retired (I worked a little longer to build up a little more cushion). But of course I would have preferred to spend the cushion on something else. Presumably some of my co-workers were more optimistic.

Sam - You've got the numbers right. I'm expecting we'll be able to buy into the existing group plan for the next two years with company money, no details yet. After that, I think anything they would say today would be non-guaranteed, so it's essentially wait and see.

Dex - I'm not counting on Obama's plan. In fact, given my views on gov't health insurance, I probably won't like his plan when it comes out.

Biker - "Diversified financial" but the big financial drivers are a couple of niche P&C insurance products. Not a company that was operating as a shadow bank.

 

[Bikerdude]

Biker - "Diversified financial" but the big financial drivers are a couple of niche P&C insurance products. Not a company that was operating as a shadow bank.

I was afraid you would say that.

 

[JOHNNIE36]

I'm one of those GM salaried retirees who is losing their health care benefits effective 1-1-09. I took a special early out 5-1-88 when I was just 52. Been retired 20 years now and had health ins until now. I could see it coming. There are as many retired people as workers. Companies can't afford it any longer especially larger outfits like GM. Been on Medicare since 2001 and GM was supplying BCBS as the supplement but it was costing us some. They were also paying me $78/month toward my Medicare premium. I was paying $145 per month including health care, dental and vision. Found United Health Care Medicare Advantage plan for zero dollars except for my Medicare premium which goes to them. Plan includes prescription drugs as well and basic dental and vision. Only time will tell how I make out. Spent 34 years with GM and they treated me well in retirement. My, how times change. I remember at one time GM was the largest company in the world with over 750k employes world wide. I wish them luck but don't know how they can survive. Same with Ford and Chrysler.

 

[samclem]

Health insurance premiums are usually deductible if you have sole proprietor earnings, don't forget.

Yep, that's an angle that might save you some money, if you've got self-employed income. If you've got such income, you could also use it to move $$ from any taxable accounts to a SEP IRA or SOLO 401K, etc.

 

[Koolau]

Every time my ex-employer ups my retiree health insurance premium or changes the plan to cost me more money/reduce flexibility - I heave a sigh of relief. That means I still have health insurance. The only thing that truly concerns me about ER is health insurance. With past history of cancer and typical yuppy diseases in the family, I really don't know if health insurance is obtainable - at any price. I've never had to shop for it and that would definitely ruin my day (week, month, year, etc.). 3 years to MC, so could be a long time to "stay healthy".

Best luck to Independent and all others who face this challenge. Oh, and Merry Christmas!!

 

[JOHNNIE36]

Every time my ex-employer ups my retiree health insurance premium or changes the plan to cost me more money/reduce flexibility - I heave a sigh of relief. That means I still have health insurance. The only thing that truly concerns me about ER is health insurance. With past history of cancer and typical yuppy diseases in the family, I really don't know if health insurance is obtainable - at any price. I've never had to shop for it and that would definitely ruin my day (week, month, year, etc.). 3 years to MC, so could be a long time to "stay healthy".

Best luck to Independent and all others who face this challenge. Oh, and Merry Christmas!!

Koolau, depending on where you live might determine how much health care will cost you when you reach Medicare age. Here in Geezerdom (Florida), there is so much competition you can actually get some good deals because all the health care providers. Things will be changing with the new administration so by the time you reach 65 the picture may be somewhat different. About a year before you reach the magic age, you can start your research. Just go to Medicare.gov and search the info for your state.

 

[Retire Soon]

Every time my ex-employer ups my retiree health insurance premium or changes the plan to cost me more money/reduce flexibility - I heave a sigh of relief. That means I still have health insurance. The only thing that truly concerns me about ER is health insurance. With past history of cancer and typical yuppy diseases in the family, I really don't know if health insurance is obtainable - at any price. I've never had to shop for it and that would definitely ruin my day (week, month, year, etc.). 3 years to MC, so could be a long time to "stay healthy".

Best luck to Independent and all others who face this challenge. Oh, and Merry Christmas!!

I couldn't agree more. I am just happy that I still have employer subsidized health insurance. I have 7+ years to go before MC, and am fully aware that a lot can happen between now and then.

 

[MovingtotheCove]

Big consideration for many going forward....

As more and more cut back on what a retiree will receive and more and more is pushed to the "free market" what and where will it all go? Again, politics aside the health care mess and coverage confusion and lack of stability is at crisis level in my humble opinion. We need to step up to the plate and provide health care to all somehow. I don't know what model to use or what model to criticize....just know the maze of coverages and maze of not covered is far beyond what it should be. In our case we anticiapted higher premiums and less coverage and more hassles and 4 years ago while in good health took out a private plan vs. being linked to an employers plan. This plan is nationwide in USA, it is a High Deductible plan ($3,850 per family unit per year), it pays 100% after that level, and we linked an HSA to it. Each year we write a check back to us from the HSA to cover the under $3,850 portion of our costs. Now...will this work to carry us to age 65? We have about 12 years to go and think it should work if in fact we can simply keep up with the premium increases. Our HSA has about 3 years of deductibles in it now and should continue to grow. Again, as we understand it they can't drop us unless they discontinue the whole class of coverage but they can and do raise premiums each year. So far it looks like a good move.....we have coverage no matter where or how much we work....will it hold on to age 65 and can we affort it? Stay tuned!

 

[Delawaredave5]

Sure enough, the letter went "blah, blah, blah, bad economic conditions, blah, blah, can no longer afford to subsidize retiree health care, blah, blah".

So all retirees have to get off the company's plan ? There's no option to stay and pay the premium yourself and leverage group rate ?

I assume you still had a contribution towards medical insurance before this change - how much was it ? Any idea on monthly cost after leaving company plan ?

Don't say anything you don't want to - I'm just curioius. My Megacorp keeps increasing "retiree contribution" - but not terminated.

What happens to people with pre-existing conditions ?

 

[Independent]

So all retirees have to get off the company's plan ? There's no option to stay and pay the premium yourself and leverage group rate ?

I assume you still had a contribution towards medical insurance before this change - how much was it ? Any idea on monthly cost after leaving company plan ?

Don't say anything you don't want to - I'm just curioius. My Megacorp keeps increasing "retiree contribution" - but not terminated.

What happens to people with pre-existing conditions ?

All I know now is a few lines in a one-page letter. But I'm pretty sure that we'll be able to buy into the existing plan for at least two year. The company is "eliminating the subsidy" but not "eliminating group health for retirees".

I agree with you that just staying in the group plan is a big deal. Before I retired, I said that the only thing I really needed from the company was group rates. But I also felt that if they don't subsidize the coverage, eventually they get anti-selection and the rates spiral up.

According to the company, their contribution for a couple, under age 65, was about $14,500 per year. For a couple over 65, it was $3,000 per year.

If you stay in the plan, I'd assume no changes on pre-existing conditions. If they close the plan, then we've got whatever HIPAA provides. I generally believe that means you can get coverage as long as you "stay in the system", but I know there are exceptions (my son discovered that his student health insurance didn't fall under the guidlelines).

 

[SteveL]

I could be wrong, but I don't think that HIPAA applies to retired folks. Likewise, I don't think employers are required to offer COBRA to retired folks when they terminate a health care plan. All the references in HIPAA refer to employees.

When I retired in 2001, I paid $200/mo for the DW and I to have coverage. By 2008 this had reached $800/mo as the company had frozen its subsidy in 2001.

The company was purchased by another this year, and we became part of the new owner's retiree pool. Their subsidy is higher (although frozen) and we will pay $600/mo for 2009.

We have just a few years till Medicare so who knows.......

Something has to be done.