Retiree Health Coverage On the Decline

There are still lots of options, as well as financial subsidies, for most retirees seeking insurance.
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It is not just the retirees of distressed or bankrupt companies such as Bethlehem Steel, Chrysler, Ford (F) - Get Report and GM (GM) - Get Report who are finding that the health care that they had anticipated receiving in retirement will no longer be provided.

According to the

Kaiser Foundation

, back in 1988, 66% of retirees had company health coverage. By 2003 this had dropped to 38%, and in 2007 it was 33%.

With more companies due to announce similar cutbacks before the Medicare enrollment period, company-paid health coverage in retirement seems to be disappearing into the sunset alongside the defined-benefit pension plan.

Not so fast. The perk of health care in retirement may appear to be going away, but the reality for existing retirees and for many current employees is very different.

Early Retirees Still Covered

Despite the headlines, 30% of companies employing 200 or more, including GM, are leaving health coverage in place until retirees reach 65 and qualify for Medicare, so younger retirees have coverage. Of those companies, 23% continue to offer health care for the Medicare eligible.

The issue is that companies have taken differing approaches to the over-65 group.

Health Care Alternatives

Some companies have stopped providing health care altogether for older retirees, leaving them to obtain coverage under Medicare when they qualify. Others have taken an approach that, in essence, results in company-sponsored health care remaining.

Although there are no current statistics available to demonstrate the extent of the trend, there are several examples of traditional industrial corporations that have removed large health care liabilities from balance sheets.

Instead, companies have substituted these expenses with a smaller quantifiable amount that no longer is included as a health care liability and presents the illusion that health care is no longer provided.

If we look at GM, for example, despite the withdrawal-of-health care announcement, salaried retirees or their surviving spouse at 65 will receive a discretionary taxable increase to their pension of $300 per month. This gives a retiree complete flexibility as to where they spend this money and has been said by some to be more than fair as it represents a significant health care subsidy.

As another approach, both Chrysler and Ford retirees over 65 receive an allowance that is paid into a pooled Health Reimbursement Arrangement. This fund is administered on behalf of the company and the retiree and operates as a source of reimbursement of health care expenses. As the account is shared, either spouse can have their medical bills reimbursed from the HRA, to the limit of the balance in the account.

So, headlines aside it seems that in reality companies are continuing to provide health care, albeit in a different form. This may not satisfy the affected retiree but it is significantly better than the alternative.

Legal Action Failed

Despite legal action by the

Equal Opportunities Commission



challenges to the removal of health care from retirees over 65 on the basis that it discriminated against them have failed.

In March, the Supreme Court upheld earlier decisions that it is legal to discriminate against older retirees who are able to obtain health coverage through Medicare. This decision removed the possibility that companies would have simply withdrawn coverage for the most vulnerable of retirees, those under 65, rather than offering coverage to all.

Longer Work Life Predicted

Unfortunately for some however, especially for those employees who started their work lives in the past 10 years, health coverage in retirement provided by an employer will be a very rare thing. This is partially as a result of the gradual move away from the general provision of health care for retirees and also the reality that, with a mobile work force, employment for life is no longer the reality.

So for those who have retired, enjoy the coverage that you have, however it is provided; and for those who are still working perhaps you need to get used to the idea that you will be working until you can get Medicare, unless you are one of the lucky few. Ratings issues financial strength ratings on each of the nation's 8,600 banks and savings and loans which are available at no charge on the

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. In addition, the Financial Strength Ratings for 4,000 life, health, annuity, and property/casualty insurers are available on the

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Gavin Magor joined Ratings in 2008, and is the senior analyst responsible for assigning financial strength ratings to health insurers and supporting other health care-related consumer products, including Medicare supplement insurance, long-term care insurance and elder care information. He conducts industry analysis in these areas. He has more than 20 years' international experience in credit risk management, commercial lending and analysis, working in the U.K., Sweden, Mexico, Brazil and the U.S. He holds a master's degree in business administration from The Open University in the U.K.