Honeywell International Inc., the maker of turbochargers and plane parts, amended its U.S. retiree medical plan during the third quarter to withdraw group coverage for some retirees who are older than 65.
The change reduced the post-retirement benefit obligation by $137 million, Morris Township, New Jersey-based Honeywell said today in a regulatory filing.
“The independent market offers better and more cost- effective options than Honeywell can provide,” Rob Ferris, a company spokesman, said today in an e-mail. “We’re providing advisory services to help our retirees select and enroll into this new coverage to ensure a smooth transition.”
Beginning Jan. 1, 2011, Honeywell will transition some retirees to an individual market plan from company coverage, Honeywell said in an e-mail. Affected retirees must enroll in a new individual plan to have Medicare supplemental coverage after Dec. 31, 2010.
Honeywell didn’t say in the filing or e-mail whether the change is tied to the health-care overhaul signed by U.S. President Barack Obama in March. Honeywell also didn’t specify how many retirees would be affected.
Companies are turning to such strategies to cut costs and get away from the administrative duties of running a group program, John Grosso, senior health-care consultant with Aon Hewitt, said in an interview today.
In such programs, referred to as defined-contribution retiree health care, employers set a dollar amount per retiree, then the retiree selects a program in the individual market and uses the employer subsidy to either reimburse premium costs, out-of-pocket costs or both, Grosso said.
“It appears to be a strategy where the employer can start to reduce its cost, both direct-claim cost and administrative cost,” Grosso said.
More and more companies are going to be looking at such a move because it makes economic sense and in most cases it makes benefit sense for the retiree as well, he said.
Honeywell climbed 59 cents to $47.26 today in New York Stock Exchange composite trading after boosting its full-year profit forecast and predicting that in 2011, sales may grow 5 percent or more.