Debating
Health Care for Retirees
By Eileen
Alt Powell
The
Associated Press
Retiree
health care becomes a contentious issue.
Leroy McKnight retired in 2000 as an hourly employee and
union officer after more than three decades with General Motors Corp., thinking
his retiree health-care needs were covered.
Now he's taking stock-trading classes at a local college,
just in case.
"People like me worked for 30 years for wages and
health care while we worked and a pension and health care in retirement,"
McKnight said. "They've come along and changed that, and it isn't
fair."
GM is among hundreds of American companies that are cutting
back on retiree health care by suspending benefits or requiring retirees to pay
more for their care.
McKnight, who is 56, said that some GM retirees worried that
they might have to return to work to cover higher medical expenses.
Retiree health-care benefits helped several generations of
Americans deal with the ills that came with aging. Now a growing number of
retirees are seeing their benefits cut or eliminated as companies struggle to
contain health-care expenses. Meanwhile, fewer companies are offering retiree
health-care coverage to their current workers.
"People are being put in a very difficult
situation," said Paul Fronstin, director of
health research for the nonprofit Employee Benefit Research Institute in
Washington, D.C. "Most don't realize how much money it's going to take to
cover what they'll need for out-of-pocket costs."
Estimates vary, but Fidelity Investments recently said a
65-year-old couple retiring without employer-provided health benefits likely
would need $200,000 just to cover medical costs in retirement beyond federal
Medicare coverage.
Fronstin believes the figure could be
$250,000 or more, given the rapidly rising costs of medical care and how long
many Americans are living.
While Americans who are still working have some time to
accumulate additional funds, those already in retirement are put in an
extremely difficult position when benefits they counted on are cut back.
That's the case for many retired Ford Motor Co. and GM
workers, whose retiree benefits are being changed under settlements with the
United Auto Workers. Retirees are being asked to pay deductibles and
co-payments for the first time, and their payments for prescription drugs also
will rise.
Ford, GM and other companies have argued that they can't
afford to pay full benefits if they're going to be competitive with foreign
manufacturers as well as domestic competitors that don't provide benefits to
their workers.
McKnight, of
Mark S. Baumkel, a class action
lawyer in suburban
He estimated that some older auto company retirees would see
pensions of $9,000 a year reduced by as much as $1,100 a year in health costs.
"My argument to the judge is that making Ford or GM
$1,000 more profit on each car isn't going to sell more [
Not only are retirees seeing benefits cut but an increasing
number of workers can look forward to retirement without health-care coverage.
An annual survey by the Kaiser Family Foundation and Hewitt
Associates of the nation's largest private-sector employers found that just 33
percent were offering retiree health coverage in 2005, down from 66 percent in
1988.
Frank McArdle, manager of Hewitt
Associates'
"As a general matter, companies tend to continue
coverage for current retirees and those near retirement and eliminate it for
future retirees or recent hires," he said.
With retiree health-care costs rising - they were up 10
percent in 2005 from 2004 according to the most recent Kaiser-Hewitt study -
more companies feel compelled to pass on the additional expenses, McArdle added.
"Individuals need to start factoring this into their
financial planning," he said.
AARP, the Washington, D.C.-based seniors
advocacy group, is involved in several lawsuits over retiree health care.
One suit challenges a policy being considered by the Equal
Employment Opportunity Commission that would exempt retiree health plans from
the federal age discrimination law.
Laurie McCann, a senior lawyer for AARP, said the law
currently said that if employers provided retiree health benefits, they could
not deny them to some of their retirees based on age.
"The fear is that employers will be allowed to reduce
or terminate health benefits at 65 - when retirees are eligible for Medicare -
and incur no liability under age discrimination rules," she said.
Fred G. Dochat, 78, of
Eighteen years ago, he was "downsized" from
Armstrong World Industries, a manufacturer of floors, ceilings and cabinets,
where he had worked for 46 years.
Dochat said that when he left Armstrong,
he was promised a package of benefits with modest co-payments. Several years
ago, when Armstrong sought Chapter 11 bankruptcy protection because of asbestos
claims, his premiums and co-payments started going up.
He worries that if the EEOC goes ahead with its new policy,
he could lose health coverage.
Dochat said he would be hard-pressed to
find affordable, private coverage because he's had heart bypass surgery and his
wife, Barbara, 73, has survived cancer.
"It's not just us," Barbara Dochat
said. "There are thousands involved. What they [the EEOC] is doing is not
morally right."
John Rother, AARP policy director,
said AARP was co-counsel in a class action suit filed against Caterpillar Inc.
It accuses the Peoria, Ill.-based firm of violating a binding labor agreement
by deducting health-care premium charges from the pension checks of hundreds of
retirees.
"Sure health-care costs are high and going up, but
they've been going up for a long time," Rother
said. "The problem today is there's a race to the bottom.... If everybody
else is dropping benefits, then you have a board meeting and they ask, 'Why
aren't we doing it, too?'"
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