Boomers feeling ill as firms slash retiree health benefits
By Adam Geller
Associated Press
NEW YORK — A few days each week, Jody Maxfield and two or three co-workers grab sandwiches and sodas and gather at a table in an office cubicle to share lunchtime conversation — and worries about the future.
"That's always the topic of conversation, retirement," says Maxfield, a 42-year-old electrical engineer for Boeing Corp. in St. Louis. "How the company is pulling benefits away from us."
Maxfield said he and others are rankled by a decision, made by Boeing's predecessor, to stop subsidizing health insurance for future retirees. By the time he is eligible for retirement in 10 years, Maxfield grimly figures that health insurance premiums will claim a substantial portion of his monthly pension check.
"I'm not exactly sure how I would cover it," he said.
Thousands of retirees have confronted that quandary in recent months, and a legion of boomers could eventually face the question as more companies scrap long-standing commitments to pay for retiree health care.
Public attention has focused on deeply troubled companies like Bethlehem Steel and Polaroid Corp. eliminating health insurance for longtime workers who have already retired. But many other companies have avoided controversy by eliminating the benefit for people who may not yet appreciate what they're losing — workers who will retire in the future.
Aetna Inc. announced last month that it will cut subsidies for retiree healthcare gradually over the next four years so that workers who leave in 2007 or thereafter will have to foot the entire bill themselves. People who have already retired will not be affected.
TXU Corp., a Dallas-based energy company, last year eliminated its future retiree health subsidy for workers younger than 35 as well as for those who are younger than 50 with less than 10 years of service. Other workers will shoulder 20 to 60 percent of the cost, depending on age and years of service.
Motorola told its workers in late 2001 that it will continue to pay for 80 percent of their health insurance costs once they retire, but that anybody hired after Jan. 1, 2002, will not be entitled to any subsidy.
Other employers, including J.C. Penney, laboratory equipment maker Beckman Couter Inc. and phosphate producer IMC Global, have also announced plans to cut back health insurance benefits for future retirees.
"We're just trying to bring our benefits expenses more to competitors' levels," Aetna spokesman Fred Laberge said. "We are careful to communicate to employees every year that these kinds of benefits are not an entitlement, but that they are always subject to change depending on economic conditions and factors related to the company's finances."
Many of the employers making changes note that future retirees will still be able to purchase health insurance through their companies at group rates often significantly cheaper than individual coverage.
Aetna and the other employers have plenty of company.
In a recent survey of more than 400 large companies offering retiree health benefits, 22 percent of the firms said they are likely to eliminate subsidized health benefits for future retirees. The survey by the Henry J. Kaiser Family Foundation and Hewitt Associates also found an additional 13 percent of firms had eliminated such benefits in the past two years.
The shift reflects growing pressure on companies, struggling for profitability in a down economy, to put a lid on soaring benefits costs without sparking an outcry from retirees or longtime workers.
"I think there's a major interest (by companies) in not disrupting current retirees when they can at all avoid to do it," said Frank McArdle, who worked on the survey for Hewitt.
But the new reality may have escaped workers who will have to foot the bill in the future.
"I don't think people are fully appreciating how many employers are changing their commitments," said Tricia Neuman, a vice president with the Kaiser Foundation.
Some of the first to grapple with the change are people who have already retired and counted on company-paid health insurance.
Workers who are still years from retirement may need to step up savings to pay for medical coverage, because the bills could be enormous, according a report last month by the Employee Benefit Research Institute.
In one such scenario, a worker who is now 55 and plans to retire in 10 years would need savings of $347,000 when their job ends to cover their entire insurance premium and supplemental Medicare coverage until they reach the age of 80.
