Retiree benefits Featured

8:00pm EDT September 25, 2009

A provision that would preclude amendments reducing benefits under a retiree health plan once a covered individual has retired has business owners worried. The provision was added in the House Education and Labor Committee markup of the comprehensive health reform bill but has not been widely discussed.

“The provision would prohibit any amendment to reduce benefits unless a similar amendment was made to the active employee benefits,” says Mike Morfe, senior vice president, consulting actuary, and Aon’s national subject matter expert on retiree medical benefits.

As members of Congress and the Obama administration host public forums around the country on the issue of health care, the focus has been on matters such as a potential public plan option, the employer mandate and penalties for noncompliance, the costs of reform, and even largely misunderstood provisions of the legislation, such as the end-of-life counseling proposal. All of these issues have proven controversial, making it difficult for business owners to understand what is really on the table, and have complicated the prospects of the passage of a comprehensive reform bill.

Smart Business spoke with Morfe about how the provision in the proposed bill would limit an employer’s ability to reduce benefits for retirees and the impact that it would have on business owners across the country if enacted into law.

How could this provision affect employee health benefits?

One key area for employers that has not been widely discussed is the provision regarding retiree benefits. That provision would essentially preclude enacting any amendments that would reduce employer-sponsored benefits under a retiree health plan once that covered individual has retired from his or her previous place of employment. Thus, employers that now provide retiree health benefits may have concerns that they will not be able to make changes to those plans in the future, despite the fact that their plans and/or bargaining agreements include reservation of rights language that allows them to make changes. This is a legitimate concern.

When would the proposed provision go into effect?

The effective date of the proposed retiree health provision would be the date of enactment of any reform legislation. Of course, the provision may or may not be included in either the final reconciled House version or the final legislation that is approved in a Conference Committee between House and Senate measures.

Moreover, if any provision is included in the final legislation, the current proposed provision in the Education and Labor Committee version could be modified before final passage. Such modification could include the substantive requirements of the provision, as well as the effective date. For example, the effective date could be changed to the date that the provision was introduced in the House, which was in mid-July.

Why are employers concerned about the potential passage of this provision in the proposed legislation?

Many employers that currently provide retiree health benefits consider this provision as a perverse penalty against companies that sponsor such plans. In effect, employers that provide retiree health benefits, despite the rising cost of providing these benefits in recent years, are restricted, while other employers that never provided benefits, or that have terminated their plans as a result of costs or other issues, are unaffected.

Employers that are experiencing economic and business hardships view this proposal as one that would be particularly burdensome if enacted into law.

What other options for coverage would retirees have if they are impacted by the passage of this provision?

The current bills provide a temporary, federally financed reinsurance subsidy for the cost of retiree health coverage that would cover a portion of expenses between $15,000 and $90,000 a year per covered individual. If enacted as part of the bill, this temporary reinsurance subsidy would end within four years, with a total cost cap of $10 billion. The temporary subsidy was included prior to the Education and Labor provision to encourage companies to continue retiree programs.

What can business leaders do to prepare for the possible enactment of this provision?

As part of the monitoring of health reform developments, sponsors of retiree health plans may want to evaluate the possible impact of this provision on their own current retiree plans and determine whether there are any current actions that they may be able to take to mitigate the possible adverse impact of this provision if it is included in any final reform legislation. Sponsors may also want to communicate now their opposition to this provision with members of Congress in an effort to block its inclusion in the final version of the bill.

Mike Morfe is senior vice president at Aon Consulting Inc. Reach him at (732) 537-4073 or