Shifting retiree health benefits

In a post below, I discuss the possibility that the new health care law many entice many employers to drop their company-provided health insurance plans and send their staff over to one of the new health insurance exchanges or Medicaid. Such a strategy, I noted, depends on a firm reaching a conclusion that having company-sponsored health insurance is not important to attract and retain workers.

But there is a group of people who are served by company-provided insurance whose competitive employment choices are no longer of any concern to the firm: Retirees.

Post-employment health benefits are an expensive drag for many companies. Even if the full provision of health insurance ends upon Medicare eligibility, there is the cost of covering retirees during an intervening period. This could easily be 10 years or more, since people can often retire in their mid-50s.

Hewitt Associates seems to be on top of this trend. The company conducted a survey last year of 245 U.S. companies that offer medical benefits to 1.3 million retirees and their families and "learned that six out of ten employers intend to evaluate their long-term retiree medical benefits strategy in the near future, and nearly half of these companies have already begun the evaluation process."

Look at this finding:

While the second option seems more drastic, the first option is intriguing because it still allows a company to gain financial stability with regard to the retiree health care costs. You set an annual amount that you are prepared to spend per person and let the former employees go shopping. Nothing says you have to increase that amount each year, or, if you do increase it, nothing says that you have to do so at the rate of inflation of health care costs. This could remove a huge liability from the balance sheet of many corporations and transfer the risk of future cost increases to the former employees.