The news that Time Warner and IBM are changing retiree health-insurance benefits has some claiming the moves are proof that the Affordable Care Act (ACA) is drastically eroding the employer-based health-insurance system it promised to preserve and increasing costs for retired corporate workers in the process.
In truth, corporate America was already looking for ways to trim health-insurance costs, particularly for retirees, long before Obamacare came along. The benefit decisions announced by IBM and Time Warner have little direct relationship with the health care law and will not, as some have suggested, leave retirees without any insurance.
The changes at IBM relate to supplemental health benefits for retirees who already receive Medicare through the federal government. Rather than administer these additional benefits for company retirees over 65, IBM will direct former employees to a Medicare-specific insurance exchange, or marketplace, and subsidize the cost of this extra coverage. Retirees will have to participate in choosing their supplemental plans, but will ultimately have more options, according to IBM. Time Warner, the parent company of TIME, will give retired employees too young to qualify for Medicare subsidies in order to purchase coverage on their own through private exchanges that are separate from the public insurance exchanges that will open Oct. 1 as part of the ACA.
Nationwide, companies have been making similar changes for many years. According to the nonpartisan Kaiser Family Foundation, in 1988, 66% of companies with 200 or more employees that offered insurance benefits to active employees also offered retiree health benefits. By 2008, two years before the ACA became law, the figure had dropped to 29% and is currently 28%, according to Kaiser. In 2009, a year before the ACA was signed, Xerox eliminated supplemental health benefits for retired workers who qualified for Medicare. The decision drew a lawsuit from retirees, but a federal judge ultimately ruled that the group had no legal claim against the company. “It had nothing to do with Obamacare,” says James Marino, a lawyer for the Association of Retired Xerox Employees, which filed the lawsuit.
Although Obamacare is not directly responsible for corporations cutting back and altering benefits for retirees, the law won’t do much to slow this trend. In fact, it could indirectly increase costs for companies that might, in turn, look to retiree benefits to cut spending. The law sets a minimum floor for what medical care health-insurance plans must cover. Although many corporate health-insurance plans were grandfathered in and exempted from complying with these requirements, the exemption disappears if companies make significant changes to their health-insurance offerings, which is common. Architects of the law say it will reduce the growth of overall U.S. health care spending and costs for individual medical treatments and procedures, which could reduce costs for employers, but it will be years or even decades before this promise can be evaluated on the merits.
And with the law’s public health-insurance exchanges scheduled to launch in just a few weeks, companies can point to them as viable alternatives to company-sponsored retiree coverage. Retirees in their late 50s and early 60s who don’t yet qualify for Medicare and are generally sicker than their younger counterparts currently face some of the highest health-insurance premiums in the individual marketplace. Under the ACA, insurers will no longer be able to charge these people higher rates based on health status, but the law does allow premiums to be set by age. Insurers will be able to charge the oldest enrollees in any given health plan three times as much as the youngest enrollees.
Still, for similarly aged retirees without any subsidies from their former employers — like those who worked independently or for small businesses — the Obamacare exchanges, which will offer public subsidies to low- and middle-income Americans without job-based coverage, could give the first real chance at finding affordable health insurance.