More Retirees Losing Employer-Promised Health Care, Witnesses Say

By Betsy Miller Kittredge on 09-25-2008, 04:40 PM in

Stronger protections in federal law are needed to ensure that companies deliver on their promise to provide health care to retired workers, witnesses told the full committee today. With insurance premiums skyrocketing and companies looking to cut expenses, an increasing number of companies have been rolling back or eliminating promised retiree health benefits. The Kaiser Family Foundation estimates that the share of large firms offering retiree health coverage fell by half between 1988 and 2005, from 66 percent to 33 percent.

“Through the years, millions of workers have retired believing that they would be provided with the health care benefits that they were promised by their employer, benefits that they earned. What many of those workers found was their former employer eventually made a cost-cutting decision to renege on that promise and cut or reduce those health care benefits,” said Rep. John Tierney.

One of those companies was Raytheon Missile Systems, a defense contractor. Despite guaranteeing lifetime heath coverage to its retirees in the 1990s, in 2004 the company notified retirees that they would be have to pay several hundred dollars a month to continue coverage. “Retirees have been forced to sell a large part of their retirement dreams in order to afford the premiums they now have to pay,” said David Lillie, a Raytheon retiree. “More than a few retirees have had to mortgage their homes that were paid off in order to pay medical expenses that were not covered under a cheaper insurance plan.”

Employees have few protections when trying to prevent employers from shrinking or eliminating health benefits. Employer-sponsored health insurance for both retirees and current employees is voluntary. If an employer chooses to provide these benefits, employers are generally allowed to modify or terminate benefits, as long as they disclose it in the fine print. “The law is hostile to reasonable employee expectations about retiree health benefits – expectations created by the employer and from which the employer benefited in terms of increased employee loyalty and productivity,” said Norman Stein, a University of Alabama law professor and pension expert at the Pension Rights Center. “We know that in a real work environment, rather than the imagined work environment conjured up by the judge, employees tend to believe communications – oral and written – that they receive from their managers.”

The trend of scaling back or canceling promised health benefits accelerated in the 1990s when, as a result of an accounting rule change, companies were forced to disclose future health care obligations as a part of their balance sheet. By rolling back promised benefits, companies could result in a healthier bottom line to shareholders.

Historically, employer-sponsored retirement health benefits have been an essential source of health care coverage for retired workers and were a common benefit among larger institutions. As a part of their compensation package, loyal and dedicated employees were promised health benefits when they retired. “When most of the current retirees were in the workforce, larger American companies universally offered retiree health care to their employees and retirees as an incentive to retain trained employees,” said C. William Jones, chairman of ProtectSeniors.org, an advocacy group founded to protect retiree health care. “The workers accepted the IOU for retirement health care and other benefits in exchange for lower wages, and fewer vacations and holidays.”