110,000 current and soon to be eligible retirees working for IBM woke up to an unpleasant surprise this morning, when the WSJ reported that as a result of soaring healthcare costs, the tech bellwether giant will be terminating its company-sponsored health plan and instead giving (soon to be former) beneficiaries a lump sum payment to buy coverage on a health-exchange: a move which the WSJ characterized as indicating that employers are unlikely to keep providing the once-common benefits as medical costs continue to rise. The reason why all IBM retirees will have to find alternative, third-party, retirement coverage upon hitting the Medicare eligible age of 65 is that "IBM said the growing cost of care makes its current plan unsustainable without big premium increases." And to avoid those premium increases, the costs will find a clearing price either in a private exchange (supposedly competitive, realistically monopolistic), or will end up commingled with other public healthcare funding. End result: IBM benefits, everyone else loses.
From the WSJ [5]:
IBM told retirees that its current retiree coverage will end for Medicare-eligible retirees after Dec. 31, 2013, according to documents reviewed by The Wall Street Journal and confirmed by IBM.
"Cost increases under our current retirement group health care plan are no longer sustainable for you," IBM said in the notices. "Health care costs under IBM's current plan options for Medicare eligible retirees will nearly triple by 2020, significantly impacting your premium and out of pocket costs," the notice said.
Exchanges such as Extend Health generally present policies from a range of insurers and let participants choose what best meets their needs and budgets. The aim is to create competition that keeps costs down.
On paper that's fine. The only problem is that as we already from the case of Aetna which recently announced [6]it would pull out of the California individual insurance market, what may instead be happening is a forced monopolization of the "exchange" market, which instead of lowering equivalent prices, would send end prices far higher than under a true free market - a concept the administration which conceived of Obamacare is not on perfect speaking terms with. The only real question is just how higher will the pain for the end consumer truly be at the end of the day.
IBM is not the only company trimming costs by outsourcing future funding in exchange for a current lump sum payment:
Bryce Williams, managing director of Towers Watson Exchange Solutions, which runs Extend Health, said the exchange is becoming popular because it gives companies a way to continue offering health care to retirees as medical costs for that population explode.
"Companies were turning off plans," he said. "We've given them a proven way to subsidize. At some point every single retiree will join a Medicare exchange."
DuPont began using the Extend Health exchange for Medicare-eligible retirees in January. The move was done to stabilize costs and simplify administration of retiree-health benefits, said a DuPont spokeswoman. A Caterpillar spokeswoman said the company has been an Extend Health client since 2009.
Still, despite the promises, some are already concerned where the truth ends and the lies begin:
IBM said it would tell retirees what the subsidy is around Oct. 1. IBM and Extend Health said nearly all retirees will be able to enroll in plans that will be of equal or better value than plans IBM currently offers.
Some union-affiliated groups and retirees weren't convinced. Lee Conrad, national coordinator for the IBM Global Union Alliance, said the worker group "sees this as just another take-away of retiree and employee benefits."
Donald Parry, an engineer who retired in 1992 after nearly 32 years at IBM, said he is concerned he may have to pay more. "The worst thing right now is not knowing what's going on," said Mr. Parry, who lives in Fruit Cove, Fla.
While one can't fault IBM for doing what is in its shareholders' best interest, especially if its employees are too confused to grasp the implications of the plan shift early on and have too little leverage to do anything to change it, the bigger question is how and where will the final subsidy to all these plans, whether Medicare or Obamacare, come from, especially when one expands underfunding away from private enterprises to encompass the public sector as well.
Because it is here that things get really ugly:
[7]
But don't worry - someone else will foot the costs.