IBM Drops Retirees from Health Plan, Union Reacts

IBM (IBM) intends to move some 100,000 retirees from the rolls of its company-paid health plan in favor of providing them with a stipend to purchase their own add-on Medicare coverage on the open market, according to reports in The Wall Street Journal and elsewhere.

In documents reviewed by the Journal, IBM chief health director Kyu Rhee is said to have told Medicare-eligible retirees that the supplemental, or so-called gap coverage to Medicare previously provided by the vendor, will end after Dec. 31. The former IBM employees will be referred to a new insurance plan offered through Extend Health, a private Medicare exchange in New York, governed by the same rules as the state and federal exchanges but not part of the Patient Protection and Affordable Care Act.

All IBM Medicare-eligible employees and retirees will be dropped from the vendor’s employee health coverage plan and offered a payment to buy gap coverage on the open market, the Journal reported. IBM will inform the affected active employees and retirees of the amount of their open-market aid at the beginning of October.

A post by an IBM senior systems engineer on the IBM Global Union Alliance, an IBM employee forum affiliated with the Communications Workers of America union, indicated that as of Jan. 1, 2014, all Medicare-eligible employees, both active and retired, and non-Medicare-eligible retirees will be required to enroll in the Extend Health program or will be terminated from any IBM medical support.

“There have been a lot of small and medium companies make this move but IBM is the first major company to trade their retiree health benefits for profit,” wrote the IBM engineer.

IBM blamed increasing costs associated with maintaining group health coverage for retirees but the move perhaps signals the start of a larger trend of big companies declining to continue health benefit plans for retired employees. Indeed, by offloading retiree health insurance costs to an exchange, IBM frees itself from the line-item costs of handling those benefit programs.

These days, any change in employer healthcare benefits is likely to draw an elevated level of attention owing to the politically charged atmosphere associated with the Patient Protection and Affordable Care Act, euphemistically known as Obamacare. Without question, IBM’s shift points to the increased role health insurance exchanges are likely to play if more large companies opt out of covering retirees.

"Cost increases under our current retirement group healthcare plan are no longer sustainable for you," IBM said in notices to retirees and employees, according to the Journal’s report. "Healthcare 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.”

However, in an interview with the Journal, Rhee said the motivating factor wasn’t cost but rather offering retirees better coverage offered by the exchange. IBM reportedly capped its contributions to healthcare plans for retirees about 20 years ago and recently stopped funding healthcare benefits for retirees who were hired after 2003, the Journal reported.