The Equal Employment Opportunity Commission recently decided
that employers could reduce or eliminate health benefits for
Medicare-eligible retirees older than 65. It did this by formally
endorsing the idea that employers did not have to ensure parity
between current workers and retirees related to health benefits or
dollars spent on health benefits.
While the EEOC claimed its intent was not to encourage employers
to reduce or eliminate retiree health benefits, it's akin to
telling the fox he does not have to walk into the henhouse simply
because the fence is down and the door open.
To be fair, employers have, for a decade, been absorbing
skyrocketing health-care premiums for their retirees. And retirees
with health coverage have exhibited little accountability in terms
of their own service use or knowing how much that use costs their
employers or Medicare.
Like everything else in health care, this irresponsibility
exacts a heavy fiscal toll over time. Employer retiree-health plans
are a critical source of coverage for older individuals. They pay
for a number of services not covered by Medicare such as dental and
eye care, as well as often covering Medicare Part A deductibles,
Part B premiums, Medicare co-pays and Part D prescription drug
"doughnut holes" that can cost several thousand dollars annually.
In some situations, they are the primary insurance for retirees.
But in today's inflating health-care system, employers see only
a zero-sum choice between covering current workers who produce for
them versus ones who used to produce.
Providing retiree health coverage has been part of the pact
between workers and their employers since the mid-20th century.
Yet, employers are doing everything they can to get out of the
retiree health-coverage business.
This year, the big-three automakers, General Motors, Ford and
Chrysler, were willing to hand over almost $47 billion to the
United Auto Workers to cover future retiree health-care costs. The
good part for the automakers is that while they paid a hefty price,
they offloaded the future burden of having to provide defined
benefits to their retirees, instead putting the entire
responsibility for who and what to cover into the hands of the
United Auto Workers union.
If it ends up costing more than the big three paid, which it
likely will, the automakers won't be the ones having to pay extra
for it.
Scarier still was that the UAW went along with this Faustian
bargain. Unions have been the retiree's longtime friend in forcing
employers to provide health coverage, specifically in the form of
defined benefits. So much so, a 2004 Kaiser Family Foundation
survey found that of employers with 200 or more employees, 60
percent of them with unionized employees offered retiree health
coverage, compared with only 22 percent of employers without
unionized employees.
Yet major union players such as the AFL-CIO and National
Education Association supported the EEOC's decision. Unions will
increasingly be more willing to let employers shift the
responsibility for retiree health coverage onto government and
themselves, because they do not want employers to touch health-care
coverage for current workers.
And that likely leaves Medicare to plug the potential holes
opened by employers reducing or eliminating retiree health
benefits, unless one wants to purchase expensive Medigap plans. If
Medicare were in big fiscal trouble before, the EEOC decision puts
another nail in its proverbial coffin.
This decision will produce greater Medicare inflation,
particularly on the prescription drug side, where many retiree
plans for years had provided coverage. It is estimated there are as
many as 10 million people affected by the EEOC ruling. But there
will be many more in the near future when 80 million baby boomers
start retiring.
In 2006, Medicare's unfunded liability (the portion of Medicare
spending we have no ability to pay for) reached more than $32
trillion, increasing almost $2.5 trillion in only one year. Since
Medicare is paid for through payroll taxes, fewer employers
providing retiree health coverage will inevitably increase the
amount of taxes workers and employers have to pay to provide
similar coverage through Medicare.
And you shouldn't feel safe if you're a civil service employee.
The bad news there, according to a recent study conducted by the
Pew Charitable Trusts, is that states owe approximately $381
billion over the next 30 years for retiree health and other
non-pension-related benefits, with 97 percent of that total amount
unfunded.
According to this same study, only six of 50 states have fully
funded their non-pension-related benefits, with New York and other
large states putting aside no money whatsoever as of fiscal year
2006. New York's obligation alone is $50 billion, according to Pew.
Many states and their localities are now also chipping away at
retiree health benefits, doing what employers started doing years
ago -- increasing retiree cost-sharing, trimming benefits, raising
the number of years of employment required to receive retiree
benefits and shifting more costs onto Medicare.
With many more civil service workers retiring over the next 20
years, you can expect state and local governments to also try to
get out of the retiree health coverage business. Enter Medicare
again.
So don't plan that retirement party just yet. Or, if you do,
realize your best hope for the future is a badly under-funded,
potentially bankrupt government-run program that someone out there
will have to pay a lot more to support or else give up a lot more
of.
Oh, by the way, that someone is you.
--
(Timothy Hoff is associate professor of health policy and
management at the University at Albany, School of Public Health.)
c.2008 Albany Times Union