Generations of current and future employees may never have the security of employer-sponsored retirement health benefits enjoyed by a number of current retirees, according to a recently released report.
The findings in “Retiree Health Benefits: Trends and Outlook” by Paul Fronstin for Employee Benefit Research Institute, suggest that the combined effect of a number of political and economic circumstances dating from the early 1990s will likely be to discourage employers from offering their future retirees health benefits.
If this in fact happens, brokers can expect to be looked to for the health insurance education retirees would otherwise have gotten from their employers, says Ray Werntz, president of the Consumer Health Education Council, a program of EBRI, a nonprofit Washington organization.
“Employer coverage is usually designed to fill the gaps in Medicare coverage,” says Werntz.
In the past, it was not uncommon for retirees to buy three and four policies to fill those gaps, he says. “This was unnecessary and redundant. Its very easy to make a mistake. Trying to fill in the gaps with an individual policy is not for the faint of heart.
“A broker who helps retirees buy what they need and not more is going to be worth his weight in gold,” he says.
The circumstances cited in the report as putting employer-sponsored retiree health benefits in a precarious position are business accounting changes, age discrimination rulings by federal courts, medical inflation and potential federal legislation.
In 1990, the Financial Standards Accounting Board, a private organization in Norwalk, Conn., that sets standards for financial accounting and reporting, issued Financial Accounting Statement No. 106, which required significant alteration of the methods used by most private companies when accounting for their retiree health benefits, according to the report.
“The rule required companies to record unfunded retiree health benefit liabilities on their financial statements in accordance with generally accepted accounting principles,” the report says. “Because FAS 106 requires employers to accrue and expense certain future claims payments as well as actual paid claims, it dramatically impacted companies calculation of their profits and losses, and thereby created a strong incentive for financial managers to limit expenses.”
The report finds that as a consequence of FAS 106, as well as the increasing cost of retiree health coverage in general, employers have begun to place caps on the amount they are willing to spend on health coverage for their retirees.
Other consequences include age and service requirements, and dropping the benefit for future and even current retirees, according to the report.
Some companies have switched or are considering switching to a “defined contribution health benefit” in which active employees “would typically accumulate funds in an account to pre-fund retiree health benefits during their working life,” the report says. “After workers retire, the funds in the account could be used to purchase health insurance from their former employer or union, or directly from an insurer.”
The age discrimination ruling discussed in the report is from a 1998 lawsuit heard in federal district court brought against Erie County, Pa.
Counsel for the Erie County Retirees Association, which brought the suit, argued that the countys retiree health benefits program was in violation of the federal Age Discrimination in Employment Act because (older) Medicare-eligible employees were required to pay a higher portion of the total cost of their health insurance fees than (younger) early retirees, according to the report.
The federal district court originally found that the act did not apply in the case, the report says. That finding was appealed to the Third Circuit Court, reversed and sent back to district court.
Eventually, the district court found the county in violation of the age discrimination act.
“Because the Erie County decision increases the uncertainty about their future liability, some employers may decide to review some features of their retiree health plan,” the report says.
John Greene, manager of federal regulatory affairs, National Association of Health Underwriters, Washington, says “thats why its such a big deal that the EEOC, (U.S. Equal Employment Opportunity Commission) reversed its view on retirement benefits. They were finding that more employers were dropping coverage.”
In late August, the commission, which had created mandates for employer-sponsored health benefits plans, announced it was rescinding portions of a chapter on coverage in the form of a Medicare bridge (until Medicare eligibility at age 65) in its compliance manual.
As an explanation for the rescission, Cari Dominguez, commission chair, said, “The commission has heard from a wide range of stakeholders including employer, employee, and labor groups expressing concerns about the impact of the now rescinded policy on the future of employer-sponsored retiree health benefits.
“The commission shares these concerns, and our review will focus on the development of a new policy, consistent with the ADEA, that does not discourage employers from providing this valuable benefit.”
Despite this turnaround, other threats to employer-sponsored retiree health benefits still exist, as outlined in Fronstins report. Potential federal legislation that might affect the future availability of such benefits includes the proposed Emergency Retiree Health Benefits Protection Act of 2001, the report says.
“This bill would prohibit (after the date of the enactment) employers from making any changes to retiree health benefits once an employee retires and is covered by these benefits,” the report says. “The most controversial provision of the bill would require plan sponsors to restore retiree health benefits for retirees whose benefits were reduced before enactment of the bill.”
Peggy Olson, senior health care consultant, Hecht & Hecht, Portland, Ore., doesnt foresee a significant drop-off in employer-sponsored retiree health benefits, mainly because not many companies currently offer them anyway.
However, if a drop-off were to occur, she feels it would be due to a weak economy, rather than the scenarios presented in the EBRI report.
“I think the reason we might see this happen is because the economy is so horrible right now,” Olson says. “Weve dealt with changes in the law before and we always have found new benefits for people. If a group were to drop, if youre an agent, Id get on it and start talking to these people about HMOs.”
If the predictions suggested in Fronstins report are actualized, retirees will seek out health insurance brokers who can educate them about their options, Werntz says.
Medicare is a complex program many find difficult to understand, Werntz says. It can prove a particularly intimidating challenge to elderly people with diminished capacity, he adds.
“What a broker could do,” Werntz says, “is serve as an educator and help them find a product tailored to their needs.”
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 17, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.