NU Online News Service, Aug. 15, 10:43 a.m. – The Employee Benefit Research Institute, Washington, has released a report that finds that employment-based retiree health benefits, which have been getting trimmed in recent years, are likely to continue shrinking.

Reasons cited include recent business accounting changes, age discrimination rulings by federal courts, medical inflation, and potential federal legislation.

The shrinkage in retiree health benefits is not very apparent to current retirees, because the courts have ruled that an employer has a right to terminate or amend retiree health benefits only if it has proved that such a right has been reserved or stated in specific language, and on a widely known basis, according to the EBRI report.

Partly as a result, retiree health benefits are being restricted in many cases by making it harder for workers to qualify for them, EBRI says.

“While these trends do not appear to be having much impact on current retirees, they are likely to be felt most by future retirees, who are not yet or may never become eligible for retiree health benefits,” says EBRI President Dallas Salisbury.

The report, “Retiree Health Benefits: Trends and Outlook,” appears in the August EBRI Issue Brief, and analyzes these ongoing changes in retiree health benefits, focusing particularly on coverage among individuals ages 55-64. It notes that the current trend toward cutbacks in retiree health benefit programs began more than 10 years ago, as a result of more stringent accounting standards required by the Financial Standards Accounting Board, Norwalk, Conn., a private group that establishes standards for financial accounting and reporting.

In December 1990, FASB issued Financial Accounting Statement No. 106, which required most private companies to significantly alter the way they account for their retiree health benefits: The rule required companies to record unfunded retiree health benefit liabilities on their financial statements in accordance with generally accepted accounting principles. Because FAS 106 requires employers to accrue and expense certain future claims’ payments as well as actual paid claims, it dramatically affected companies’ calculation of their profits and losses, and thereby created a strong incentive for financial managers to limit expenses, EBRI says.

More recently, a major age discrimination case involving the Erie County, Pa., municipal government has many employers considering reviews of the health benefits they offer to retirees age 65 and older (who are eligible for Medicare coverage), compared with benefits offered to “early” retirees younger than 65.

Adding to the pressure are spiraling health insurance costs and proposed legislation in Congress that would prohibit employers from changing or reducing certain retiree health benefits, EBRI says.