Health coverage of early retirees criticized as expensive political ploy

September 28, 1993|By John Fairhall | John Fairhall,Washington Bureau

WASHINGTON -- President Clinton's proposal to have the government pay the health care costs of early retirees is coming under fire from critics as a $5 billion "boondoggle" to gain big business and labor support for health care reform.

Mr. Clinton proposes that the government pay 80 percent of the health insurance costs of retired workers from 55 to 64 years of age -- until they are eligible for the Medicare program. Retirees would pay 20 percent.

This is a major benefit for retirees who don't receive any company benefits and are struggling with health costs. But it also boosts the fortunes of many employers who pay health insurance bills for retired employees. They could unload much of this burden on the government.

Clinton aides say this proposal is necessary to assist retirees who lack benefits and to help U.S. industry be more competitive internationally. But some economists warn that it would add to the deficit and ultimately harm the economy.

They say the government would be subsidizing corporate downsizing and encouraging early retirement -- removing productive people from the work force.

"It's going to effectively encourage business to be laying people off and taking advantage of this benefit," said Peter J. Ferrara, senior fellow at the conservative Heritage Foundation, which has attacked other aspects of the Clinton reform plan. "I think this is another special interest boondoggle for big business."

Jack A. Meyer, president of the Economic and Social Research Institute, a think tank that specializes in health care issues, wonders how programs such as Social Security will be funded if comparatively young workers are encouraged to quit. "The last thing I think our society at this point ought to be doing is loading up the inducements to retire early."

From a political standpoint, the proposal builds valuable support for Mr. Clinton's reform plan among big businesses and organized labor. Not surprisingly, the AFL-CIO and many business leaders like the idea.

"I think it makes sense as a matter of good public policy, and we certainly support it," said Benjamin Boylston, vice president of // Bethlehem Steel, which pays "in excess of" $30 million annually for more than 10,000 retirees between 55 and 64.

Administration officials say coverage of early retirees would cost the government about $5 billion a year, but an official of the

National Association of Manufacturers suggests the figure might closer to $10 billion.

Clinton aides say this proposal is consistent with the president's overall reform plan, which requires employers to pay 80 percent of health premiums, workers to chip in 20 percent and the government to pay the remaining costs of covering all Americans.

Without some help, many early retirees couldn't buy insurance, Clinton aides say. The "burden for them is significant," says White House adviser Paul Starr, a Princeton sociologist who helped draft the reform plan.

As of 1991 there were three million retired workers aged 55 to 64, among whom nearly two-thirds were not receiving insurance from former employers, according to the Employee Benefit Research Institute. Another 1.2 million workers were covered by their old companies.

But most of those who were not receiving employer benefits were insured by another source, such as a spouse's policy. Of the 3 million early retirees, 300,000 were completely uninsured, the institute reported.

Industry also needs a helping hand, Clinton aides say, because it's unfair for some companies to pay retiree health costs while others do not. A survey of 2,500 businesses by Foster Higgins consulting firm found that 56 percent provided coverage to retirees under the age of 65.

White House officials also assert that most other industrialized countries help pay the cost of early retirees, leaving U.S. businesses at a disadvantage.

"It turns out it's not that expensive" for government to pay retirees' costs, said White House health policy spokesman Kevin Anderson, referring to the roughly $5 billion estimate. "For that money you get . . . all kinds of competitive advantage in the marketplace."

Mr. Anderson noted the impact of new accounting standards that have forced large employers to acknowledge on their books the future costs of workers' health benefits, a change that makes their net worth appear smaller. That, plus the rising cost of health insurance, has led some employers to cut back or terminate benefits for retirees.

The Clinton administration doesn't want employers to stop funding retiree health benefits. To discourage them from doing so, the administration proposes a penalty. There would be a "one-time assessment" -- the amount to be determined -- "to recapture at least the first year of that windfall," Mr. Anderson said.

But business executives, economists and even some administration officials expect that the penalty would not deter companies from taking advantage of government spending on early retirees.

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