Chip Away at Retiree Health Benefits
By Jonathan Peterson, Staff Writer
Los Angeles Times
Tuesday, September 26, 2006
Geraldine Picha knew that her pension would be modest, given her
tenure of just 15 years at the phone company.
What she did not expect was that her retiree health premium
would eat up every penny of that pension — and more.
"It's frightening," said Picha, 63, whose former employer has
raised her medical insurance bill steadily since she retired in
1998. At $560 a month, it now eclipses the $514 pension check
Picha earned from her years at what was then AT&T Corp. and a
spinoff, Lucent Technologies Inc.
Picha, who lives near Chicago, remembers when a job at a big
company meant "you were taken care of the rest of your life."
But as retirees across the gamut of American industry are
discovering, those days are ending.
Just as they are cutting back on pensions, employers are
increasingly targeting health benefits as a way to save money,
saddling older people with costs that companies used to accept
as a routine part of business.
Over time, some maintain, growing legions of the elderly will
find themselves with thousands of dollars in additional costs —
posing difficult personal choices over care and new pressures on
a federal government that already faces a vast, uncovered
liability for the old-age needs of the baby boom generation.
"Across the board, retirement benefits are on the chopping
block," said Daniel D. Doyle, an attorney for former Monsanto
Co. employees whose benefits shrank after their division was
spun off and filed for bankruptcy protection. "As companies try
to restructure and squeeze out shareholder value, they are going
to rely more and more on Medicare and other government programs
to fill the breach."
Retiree health benefits first took a big hit more than a decade
ago, when new accounting standards required companies to more
clearly disclose those costs — prompting many employers to trim
their offerings. More recently, the benefits are falling victim
to rising healthcare expenses and corporate cost cutting.
On average, retirees account for 29% of the corporate medical
bill for large employers that offer such benefits, according to
Hewitt Associates, a benefits consulting firm. And like other
medical costs, those for retirees have risen steadily — as much
as 10.3% from 2004 to 2005, according to a survey of large
private employers by the Kaiser Family Foundation and Hewitt.
Retiree medical benefits are now offered by just 1 in 3 large
employers, down from 2 in 3 in the late 1980s, according to a
study by the Kaiser foundation and the Health Research &
For those that still provide such benefits, past commitments are
being scaled back, and even steeper cuts are in store for future
retirees. General Motors Corp. last fall announced a plan to
save $15 billion in future healthcare liability for its
retirees, for the first time charging retirees from hourly jobs
a range of out-of-pocket costs for their medical needs.
"The double-digit cost pressures have been relentless," said
Frank McArdle, head of the Washington research office of Hewitt
Associates. "In many years, the annual increases for retiree
healthcare have actually been greater than for active employee
Such realities may provide little comfort to people who thought
they earned the benefits when they were working and counted on
them for security in old age.
"I thought I was going to live the good life," recalled Pete
Wilson, 69, who took early retirement from Peoria, Ill.-based
Caterpillar Inc. in 1992. He bought a 30-foot trailer and
traveled the Southwest with his wife and friends. He even
withdrew home equity, taking out a loan on his paid-off home,
bolstered by a faith that his medical costs would never be a
But last year, Caterpillar began charging Wilson $125 a month
for his medical insurance premium. This year the bill jumped to
$172. There is talk of future increases, Wilson said, although
the company declined to confirm it. His medical bills continue
to mount, most recently for a mysterious weight loss Wilson's
doctors are trying to pin down.
Medicare covers most of the costs for Wilson and other Americans
65 and over. But patients are required to share Medicare costs
for doctor visits, hospitals and prescription drugs, potentially
exposing themselves to thousands of dollars in bills.
Private insurance helps, but it doesn't cover everything.
Wilson recently had to pay $88 toward a magnetic resonance
imaging procedure. His budget, meanwhile, has been strained by
other expenses, such as a new furnace and air conditioner.
"We can't go to Arizona anymore," said Wilson, whose pension
from his 33 years at the factory is about $1,000 a month.
He still speaks with pride of his former employer, a
manufacturer of earthmoving equipment that reported a record
$1.05 billion in profit for its most recent quarter. Still, he
has some misgivings about how the company is sharing the riches.
"It looks to me like they could kind of take care of some of
these people who were there at the beginning," he said.