Retirees jolted by rising costs of health care

Employers balking at higher premiums

Many halt until-death coverage

Ex-manager's monthly bill rising to $224, from $2

November 28, 2003|By Bruce Japsen | Bruce Japsen,CHICAGO TRIBUNE

Tens of thousands of retired workers, long accustomed to generous health benefits, are being hit by huge increases in premiums as rising medical care costs strain tight corporate budgets in a lackluster economy.

The costs for providing benefits to retirees are rising even faster than premiums for active workers, pushing more companies to eliminate future retirement health benefits. More than 12 million retirees have some kind of medical coverage, provided by about half of U.S. companies with 1,000 or more employees.

Retiree rates are doubling for some, or at least jumping much faster than the 13 percent to 25 percent increase for active workers, because companies are exhausting caps set years ago to protect themselves from rising health care costs, analysts say.

Harmon Davis of Bourbonnais, Ill., knows all about it.

Davis, 60, repaired cash registers and business machines for NCR Corp. for 40 years before retiring three years ago under a deal that put his monthly premiums for him and his wife at $100 this year. But by next year, his premiums will more than double to $231, according to a letter Davis received from NCR in October.

And by 2005, Davis' costs are projected to have tripled to $620 a month - an amount that will consume more than one-third of his annual $21,540 pension. Davis expects he will be forced to look for a part-time job to pay the bills.

The spike in costs for employers comes as companies wrestle with myriad economic conditions and demands by Wall Street to improve bottom lines. Some companies are also exhausting budgets for retiree medical benefits.

Dayton, Ohio-based NCR wrote letters to its more than 14,000 retirees last month letting them know the company needs to eliminate $250 million in expenses from throughout the company by the end of 2005 and needs to cut medical benefits to meet the company's overall budgeting targets.

Health-care coverage for retirees tends to be more expensive because they are older and tend to use more medical services, particularly prescription drugs, analysts say. Most stay on employer-sponsored retiree plans until they are 65 when Medicare coverage kicks in and they then will need only to buy a supplemental policy.

But supplemental policies are going up, too - often double and triple what seniors have been used to for much of the past decade.

The Medicare bill passed this week by Congress includes $70 billion in subsidies to encourage employers to continue offering retiree drug coverage. But the Medicare revamping doesn't take effect until 2006.

Ralph Kolderup, a retired regional sales manager for the former Ameritech, now part of SBC Communications Inc., said supplemental coverage cost just $2 a month three years ago. This year, he paid $133 a month and his premium will rise to $224 a month next year.

"To go from zero to more than $2,500 a year is fine if you are working and get annual raises and maybe a performance bonus. But when you are retired, what the hell are you going to do?" said Kolderup, 65, of Palatine, Ill.

SBC is like an increasing number of companies being forced to raise premiums on retirees because of corporate budgeting maneuvers implemented several years ago that set a cap on future retiree obligations. Because of the drastic increase in health-care costs over the years, the caps are starting to kick in at companies across the country. About half of all employers offering retiree medical benefits report having such caps, according to a study by the Henry J. Kaiser Family Foundation and benefits firm Hewitt Associates of Lincolnshire.

"Ten years ago, a lot of companies reduced their liability by putting in caps, and that future deferral is now hitting retirees," said Todd Swim, benefits consultant with the Chicago office of Mercer Human Resources Consulting. "The only way companies can manage that liability without drowning is to institute these caps."

In the future, retiree medical benefits may not even be around for current employees, given the current trend, analysts say. One in five large employers say they are going to eliminate retiree coverage for "future retirees," typically new or recent hires, within the next three years, the Kaiser-Hewitt analysis indicates.

"Retirees who have medical coverage have been so well-treated with low-cost coverage that any change looks awful but it is going to get worse," Swim said.

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