IBM to Move Retirees Off Health Plan, Into Exchanges

[samclem]

From tomorrow's WSJ:

IBM to Move Retirees Off Health Plan

International Business Machines 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.

This makes perfect sense from the company viewpoint, I expect there will be much more of it in the future.

 

[harley]

From tomorrow's WSJ:

This makes perfect sense from the company viewpoint, I expect there will be much more of it in the future.

Please delete this post before Verizon sees it.

 

[Major Tom]

If enough large companies do this, then the public will slowly learn not to associate employment with health coverage. I'm finally starting to see where this could be heading.

 

[pb4uski]

I think it would be wise to divorce health insurance from employment - it was a bad idea to have the two intertwined to begin with - which if I recall correctly was a response to a different government intervention.

 

[timo2]

If enough large companies do this, then the public will slowly learn not to associate employment with health coverage. I'm finally starting to see where this could be heading.

I agree. Not having companies do the health insurance will help with international competiveness. But people still need HI, so one day in the distant future some Congress will add a 'public option' to the ACA. (eg. to help the States that will end up with only have a couple of choices in their marketplace or whatever) and that will bend the market again.

 

[haha]

I think it would be wise to divorce health insurance from employment - it was a bad idea to have the two intertwined to begin with - which if I recall correctly was a response to a different government intervention.

It was a workaround for U.S wage controls put on during WW2, when production was ramping up and a lot of workers were off fighting. Government let health benefits avoid being classified as wages, and so this tax free benefit was available to attract and hold workers.

Ha

 

[daylatedollarshort]

Logically, it makes no more sense to lose health care coverage when you lose your job than it would be to lose your car or homeowners insurance. Linking health care insurance to employment has been a wacky system and I am glad to see it coming to an end in the U.S.

 

[Major Tom]

As Ha said, it started during WW2, and worked much better then, when employment with the same company (and therefore health coverage) was often for life. In our modern world it is, as daylate says, a wacky system.

 

[haha]

As Ha said, it started during WW2, and worked much better then, when employment with the same company (and therefore health coverage) was often for life. In our modern world it is, as daylate says, a wacky system.

Another aspect is that technological obsolescence is so rapid today, many of these corporations will be gone, or gobbled up, or greatly shrunk during the time of one workers life or less.

I would have a similar feeling about some cities. Unless they have something pretty strong going for them, some people will just vote with their feet, and move to exurbs or various far flung places and avoid the crime and high costs of cities in favor of telecommuting.

Ha

 

[Katsmeow]

This makes perfect sense from the company viewpoint, I expect there will be much more of it in the future.

I think there are benefits for the retiree as well. For example, there may be way more choices of different plans on an exchange. I have HI through my DH's retiree coverage now. We do have ostensibly a choice of plans but everything other than the high deductible (which is only $3000 so not that high really) is so expensive that it makes no sense to take it. I've browsed exchange plans in some states and there are a lot more options.

Possibly the exchange pricing may be more stable. Last year our retiree premium more than doubled and that was with DH leaving the retiree plan because he went on medicare. Had that not occurred the increase would have been even more.

Of course, it obviously depends on how much the employer contributes to the cost of the exchange plan. Even with the premium increase last year, the subsidized retiree plan I am on is quite a bit cheaper than I expect exchange pricing to be. However, if megacorp contributed what it subsidizes then it would be fine. Already megacorp limits what it will absorb in terms of increases (hence the large premium increase). The only negative would be if megacorp took the opportunity to not subsidize the cost at all or cut the subsidy to less than it is now. Of course, megacorp reserves the right to do that now anyway.

 

[sengsational]

Logically, it makes no more sense to lose health care coverage when you lose your job than it would be to lose your car or homeowners insurance. Linking health care insurance to employment has been a wacky system and I am glad to see it coming to an end in the U.S.

I've always suspected that the "productivity" of the US was boosted by this linkage. I also suspect that February 7th, 2014 and other "first Friday's of the month" in early 2014 will be looking pretty "bad" as people who were only hanging on to get health insurance leave the workforce and snag something off of the state exchange.

 

[Chuckanut]

I've always suspected that the "productivity" of the US was boosted by this linkage. I also suspect that February 7th, 2014 and other "first Friday's of the month" in early 2014 will be looking pretty "bad" as people who were only hanging on to get health insurance leave the workforce and snag something off of the state exchange.

I think this is called 'creative destruction' and companies have been doing this for years.

Many people find themselves locked into a specific job because of a medical condition they or a dependent have. I suspect that as people find they are freer to move around there will be some disruption, but, in the end, being free to choose work of one's choice would seem to be better for the economy overall.

 

[daylatedollarshort]

Our Cobra / conversion policy premiums increased from $900 a month to over $2K a month this past year. Add in one surgery for a family member that will reach our out of pocket max plus some uncovered out of network fees and travel fees, and we are looking at maybe $50K in total health costs this year.

It is an ouch for us, but we are fortunate enough that we aren't going to go bankrupt over it. But with an average household making $50K a year, how would most families manage something like this, especially if they lost their health insurance because of a job loss?

Medical bills are currently the number one reason for bankruptcies in the U.S. and a lot of those households even have insurance. Without employer subsidized health insurance, before the ACA most families just wouldn't have had the financial resources to lose a job, lose employer health coverage along with the job and then be able to pay for insurance premiums plus out of pocket maxes.

 

[brett]

I have never understood the logic of having health premiums tied to an employer. It seems to me that it places a large burden on the employee and the employer.

 

[Bestwifeever]

If enough large companies do this, then the public will slowly learn not to associate employment with health coverage. I'm finally starting to see where this could be heading.

I can't read the article but from the OP it is about IBM retirees (NOT current employees) getting $ from IBM to help pay directly for exchange health insurance vs being on IBM's health insurance. Still a pretty sweet retiree benefit. I imagine the IBM employee health insurance will proceed as usual.

DH's retiree health insurance (we paid $10,000/year for two of use) was always qualified by his company that it could be stopped by the company at any time.

 

[MichaelB]

Reading the article, IBM is directing it's eligible retired employees to a private health care exchange, and contributing a fixed amount toward the purchase of a Medigap policy. This is the first real life example of these private exchanges that have been referenced lately in the media. By contributing to a policy on the exchange, this is probably not a taxable event for the employee.

From the comments here and elsewhere it would appear that most people agree there is no compelling reason for an employer to offer health care. Returning it to the employee will be painful, however, because it then becomes taxable income, and health care is the single biggest tax deduction.

 

[Animorph]

Reading the article, IBM is directing it's eligible retired employees to a private health care exchange, and contributing a fixed amount toward the purchase of a Medigap policy. This is the first real life example of these private exchanges that have been referenced lately in the media. By contributing to a policy on the exchange, this is probably not a taxable event for the employee.

From the comments here and elsewhere it would appear that most people agree there is no compelling reason for an employer to offer health care. Returning it to the employee will be painful, however, because it then becomes taxable income, and health care is the single biggest tax deduction.

Could raise tax revenue. It would be nice to free up the deduction as well as the expense and move both to the individuals.

 

[brett]

We met a gentleman on a cruise last year. He was a semi retired HR Benefit consultant. Prior to that he had been an HR VP with megacorp.

Two things stuck with me. He said that there is a growing trend, and gaining velocity, to capping to value of an employees health plan at let's say $1MIL or whatever. After they use that amount of benefits(for the ee or his/her dependents) they are essentially on their own

And he felt that this number will only go down as ers struggle to keep premiums in check. The second trend is a completely separate benefits package for senior management-much more generous health benefits. He sees this gap widening as each year passes.

 

[travelover]

..........Returning it to the employee will be painful, however, because it then becomes taxable income, and health care is the single biggest tax deduction.

Right, this is an inherent unfairness now. Joe gets his health care tax free from his employer and Pete pays a higher premium, with after tax money.

 

[Major Tom]

I can't read the article but from the OP it is about IBM retirees (NOT current employees) getting $ from IBM to help pay directly for exchange health insurance vs being on IBM's health insurance. Still a pretty sweet retiree benefit. I imagine the IBM employee health insurance will proceed as usual.

You are right. I missed that, even though it was staring me in the face. Somewhat embarrassing.

 

[Mulligan]

Well l bet the young people buying health insurance on the exchange are doing somersaults for joy over this possible trend. Let's see, they already get pounded on a government mandated 3-1 ratio on premium costs to subsidize old people. Now businesses are gonna start dumping a bunch more oldies into the exchange. And I am sure they all aren't as healthy as Jack Lalanne was. IBM gets to have lower group rate costs for their company by dumping the old folks, and everybody in the exchange gets to help pay for the increased cost. Looks like a win-win plan to me!

 

[daylatedollarshort]

Many people without group coverage, young, old and parents with kids and pre-existing conditions can't get health insurance at any premium price right now, pre-ACA.

Are there any other developed countries that have health insurance only possible for people over 65, those employed with group coverage and extremely healthy young people?

 

[scrabbler1]

Right, this is an inherent unfairness now. Joe gets his health care tax free from his employer and Pete pays a higher premium, with after tax money.

Yup, as I was putting together my ER budget and in my first few years of ER, I saw just how unfair the tax treatment of HI premiums was. I saw 3 categories of different tax treatment of HI premiums.

(1) Tax-free, the employer-paid portion of group health premiums.

(2) Tax-deductible, the employee-paid portion of group health premiums or the portion of individual HI premiums over the AGI limit, if the person itemizes his deductions.

(3) After-tax, the portion of individual HI premiums under the AGI limit, or if the person is not itemizing his deductions.

When I was working, my HI premiums were in (1) and (2). When I ERed, my HI premiums were in (3), sometimes a part of them in (2) but only if my income were low enough; and it is tougher now with the AGI % rising from 7.5% to 10%. Furthermore, when I had an increase in Qualified Dividends or LTCG which were taxed at 0%, my tax bill rose a little bit anyway because my AGI still rose and eroded the deductible portion of my HI premiums.

I recall writing a letter to my members of Congress back in 2009 explaining this inequity and suggesting a way to fix it so everyone was subject to the same tax treatment. What I suggested was to eliminate (1) by making the employer-paid portion taxable and to merge (2) and (3) by making it a deduction to income even if the taxpayer doesn't itemize his deduction, like the way an IRA deduction does not depend on itemizing one's deductions. Never heard back, big shocker.

I recall about a dozen years ago my former company reducing its retiree health insurance program costs by doing 2 things - no eligibility for future retirees, and a freeze in the future employer-paid portion for existing retirees so the retiree has to pay for all premium increases going forward.

 

[samclem]

I've always suspected that the "productivity" of the US was boosted by this linkage.

Could be. Under our present "system" employers can buy health insurance for an employee at a significant discount to what the employee would need to pay, and this benefit, as part of the compensation package, saves the employer money compared to paying the equivalent cash. And the value of this benefit is >huge< to employees who have family members with medical issues: we all know people who are working for a particular employer primarily for the medical benefits. Now that individual policies will be widely available and standardized and now that all mid-to-large employers must provide health insurance, the playing field is more level. I'd expect workforce mobility to increase, and that's good for the efficiency of the national economy. What that means to total hourly compensation will depend on the market for workers.

I'm waiting to see how employers/former employers leverage the offered government individual subsidies to reduce their costs.

 

[Katsmeow]

Reading the article, IBM is directing it's eligible retired employees to a private health care exchange, and contributing a fixed amount toward the purchase of a Medigap policy. This is the first real life example of these private exchanges that have been referenced lately in the media. By contributing to a policy on the exchange, this is probably not a taxable event for the employee.

OK, I searched for and read the whole article now which makes it clear that this has nothing to do with ACA exchanges. This is dealing with Medicare-eligible employees where IBM is apparently contributing to the supplemental coverage.

I was thinking that what IBM was doing was ending its entire retiree program to send retirees who were not eligible for Medicare to the ACA exchanges with a check that equated what IBM had been paying for retiree coverage.

The article doesn't actually address at all pre-Medicare eligible retirees or the family members of retirees.

DH's former employer does provide subsidized retiree coverage for the retired employee and spouse and children (up to age 26). Once the retiree or spouse is Medicare eligible then the coverage ends, but the employer pays for the prescription drug plan (a specified one) for just the employee I think.

I think it would make sense for an employer to end that kind of retiree coverage for the pre-Medicare employee/spouse and children and to contribute to the cost of an ACA exchange policy. I thought that was what the IBM article was about, but it wasn't.