Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, January 26, 1992 TAG: 9201280426
SECTION: ECONOMY PAGE: 10 EDITION: METRO
SOURCE: JANE BRYANT QUINN
DATELINE: LENGTH: Medium
INSURANCE FOR RETIREES IN JEOPARDY
Around 25 million workers and their spouses aged 40 and up possess - or believe they possess - lifetime company-paid health insurance. If they retire early, these plans keep on paying their medical bills. At age 65, they're covered for most of the expenses not paid by Medicare.But a goodly percentage of these workers will wake up one morning to find their benefits altered or dropped. Retiree health costs rose an average of 20.2 percent in 1989, reports the consulting firm A. Foster Higgins, and employers no longer want to pay. Current retirees can expect only small changes in their plans; for example, they may pay a bit more each month. It's the future retirees - especially those now under 55 - who will be most affected.
It's not just rising cost that is spooking employers. It's a new accounting rule that will take effect in 1993. Essentially, companies will have to reduce their reported profits by the amount of money owed their future retirees but not yet set aside for them.
Firms are scrambling to minimize the potential damage. Besides requiring future retirees to pay more of each medical bill or health-insurance premium, and dropping marginal coverage like vision care, here's what workers can expect:
Fewer retiree plans that base their payments on whatever the doctor or hospital charges. Instead, employers will make fixed contributions to health insurance. Over time, the company's contribution will buy less and less.
New ways of calculating what the company owes, after Medicare pays its share. This lets the plan reduce its expenses while elevating the individual's.
Skimpier plans for early retirees who aren't old enough for Medicare. Today, both they and active workers usually share the same comprehensive benefits. In the future, however, their benefits may shrink to Medicare levels.
Leaving workers to finance their own retiree-health insurance by contributing to a special fund. The company may contribute, too. At retirement, that money can be used to buy medical coverage.
Diverting part of the money the company contributes to your retirement plan, and using it for health insurance. This gives you medical coverage at the expense of pension savings.
> Less protection for short-term employees. To earn company benefits, an employee may have to work 10 or 20 years. Today, only half of the workers age 45 and up meet the 10-year test.
Also, assurances of employer contributions may vanish into that secret graveyard where bosses' promises go to die. In 1987, National Intergroup, now in Dallas, scrubbed its retiree-health plan for workers then under 50; instead, it donated "medical savings" to the employees' 401(k) plans. Last year, however, layoffs reduced the staff by so much that the 401(k)s had to go.
To prepare for drastic changes in company-paid retiree-health insurance, don't switch companies after age 45 otherwise you might not qualify for its retiree plan.