IBM has announced that it’s dumping its retiree health benefits onto the exchanges. Not the Obamacare exchanges, but a Medicare exchange. Medicare-eligible retirees will no longer be eligible for IBM’s company health plan; instead they’ll get a subsidy to buy supplementary Medicare coverage. Presumably, IBM being IBM, this will allow them to buy some pretty generous coverage that leaves them with relatively small out-of-pocket costs. But notwithstanding some protestations from the company, the coverage they’re losing -- IBM being IBM -- is presumably still better.
This is the continuation of a trend (Time Warner Inc. announced a similar move yesterday, as did General Electric Co. last year), and though my first instinct when I saw the headline was to assume that this had something to do with Obamacare, in fact, it’s a story about accounting. Once accounting rules changed to force companies to disclose the cost of the health benefits they were promising, big companies started moving those retirees off the books. This once-common benefit is becoming rarer and rarer.
But in fact, this is also a story about Obamacare. Because many of those big companies still offer health benefits to their retirees who aren’t eligible for Medicare. As the years wind on, it seems likely that those employees will also be given a bit of cash and told to go buy a policy on the exchange. After all, many may qualify for subsidies, now that their post-retirement incomes are lower. It would be foolish to offer them company coverage if you can get the federal government to pick up the tab. As those accounting charges for health insurance start to mount, there will be pressure to move them off the books, just as they have done for their Medicare-eligible retirees.
After all, what this really shows is that companies don’t like to terminate benefits unless there’s a viable alternative in the marketplace. IBM clearly doesn’t care only about the expense -- otherwise it would be cancelling benefits for everyone. Instead, it's only terminating the benefits for people who are eligible for government-subsidized insurance. Presumably, it feels constrained by past promises, and concern for its former employees, not to dump them on the market if there’s a chance they’ll end up uninsured.
This implies that employer dumping of retirees may ultimately cost the government a great deal in subsidies, as companies who used to offer retiree health benefits migrate their younger employees to the exchanges. Maybe not for well-compensated IBM employees, who will hopefully remain above 400 percent of the federal poverty line even after they retire. But a lot of big companies have lower-paid retirees, not to mention multi-employer plans run by unions. And small businesses who keep folks on the health plan into retirement because, hey, Sam’s worked for you for 30 years.
Of course, why should this phenomenon remain limited to retirees? In theory, employers shouldn’t really care about whether there’s an alternative when they decide whether or not to terminate their health plan. But in practice, IBM’s decision shows that they do -- even when they don’t need to worry about attracting and retaining employees. IBM’s employees are not going to pick up and go to be retired from another firm unless they get generous health benefits. But IBM still cares a lot about keeping them covered.
If other employers follow similar decision-making patterns, both retirees and many current workers can expect that come 2014, or sometime thereafter, they will get a note informing them that their current health care plan has been cancelled, and they’re getting a small sum to help them buy insurance on the exchanges. In some ways this is a good thing -- breaking the link between employment and health benefits is the fondest wish of virtually every health-care wonk. But the people losing corporate health care plans probably won’t be too pleased about it. And neither will the taxpayers, when they get the bill.