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The Changing Face of Health Care

By JLP | September 27, 2007

One of the cover stories, A Turning Point For Health Care ($), in today’s Wall Street Journal is about how the GM-UAW deal is a turning point for health care. From the article:

The shift isn’t only about dropping coverage or making workers pay more of the bill. Like GM, many employers want to immunize themselves from the risk of rising health costs. In many cases, especially for retirees, this means shifting to plans in which the employer provides a lump sum for health coverage and employees have to figure out how to spend it. That way, the employer knows ahead of time exactly how much it is spending.

In GM’s case, an independent trust will assume the task of providing health coverage to the company’s unionized retirees and spouses. GM will put money in the trust — as much as $35 billion, according to people familiar with the deal — to get it going. But it’s up to the trust to set and manage the benefits.

According to the article Ford is going to stop providing group insurance in January to about 57,000 salaried retirees and their spouses who are over 65 years old. Each person will receive $1,800 per year to help cover insurance premiums. That’s pretty stingy if you ask me. I know it’s nothing for health insurance premiums to be over $500 per month. That measely $1,800 per year isn’t going to do much.

I don’t see how companies can make changes like this, especially to people who were counting on their benefits. Can’t they grandfather people and make cut off points for everyone else?

I wonder if Ford would like it if people stopped paying their monthly car notes? “I’m sorry Ford, but I just don’t have enough to go around so starting in January 2008, I’m only going to pay you $1,800 per year.” LOL! I bet that would go over real well!

Topics: Retirement Planning | 17 Comments »


17 Responses to “The Changing Face of Health Care”

  1. Health » The Changing Face of Health Care Says:
    September 27th, 2007 at 11:17 am

    [...] Walter wrote an interesting post today onHere’s a quick excerptAccording to the article Ford is going to stop providing group insurance in January to about 57000 salaried retirees and their spouses who are over 65 years old. Each person will receive $1800 per year to help cover insurance premiums. … [...]

  2. The Finance Buff Says:
    September 27th, 2007 at 11:41 am

    You missed the key phrase “who are over 65 years old.” People over 65 are covered by Medicare. The Medicare part B premium is about $95/month. $1,800 per year covers more than that.

  3. Jeremy Says:
    September 27th, 2007 at 11:46 am

    I don’t see a problem with this, and I’m not sure it is “stingy” either. First of all, if you “retire” prior to age 65 (in which you’re eligible for Medicare), why should the employer be obliged to foot any of the bill? The only reason employers offer additional coverage is for a benefit, but it doesn’t make good business sense to almost encourage someone to retire early, meaning they are not helping the company in any way, yet the company still has to foot a bill for medical coverage.

    Once you reach Medicare eligibility, the premium to opt into part B is under $100/month, or you could even get a medigap policy instead, oftentimes for under $175/month. In addition, you could look into a Medicare Advantage plan in combination with Medicare part B and possibly end up with prescription drug coverage as well.

    There is no reason a company should be on the hook to simply provide health care benefits after age 65. It is certainly good to provide an OPTIONAL group plan you can enroll in prior to 65, or even to enroll in an employer sponsored medigap type plan.

    If you elect to retire prior to being eligible for Medicare, that is your choice (if it isn’t a choice, you’re probably looking at a disability case anyway) and it should be up to you to look at paying for your own health benefits, or if married and your spouse still works, get on their plan.

  4. JLP Says:
    September 27th, 2007 at 11:59 am

    Jeremy,

    The only reason I think a company should be on the hook is if they promise the benefits. It doesn’t seem right that they can promise benefits and then come back and say, “oh, we changed our minds.”

    I’m fine with a company’s decision to stop benefits for younger generations as long as they know in time to prepare for it.

  5. Health Tips Blog » The Changing Face of Health Care Says:
    September 27th, 2007 at 12:22 pm

    [...] Here is an interesting post today onHere’s a quick excerptOne of the cover stories, A Turning Point For Health Care ($), in today’s Wall Street Journal is about how the GM-UAW deal is a turning point for health care. From the article:. The shift isn’t only about dropping coverage or making … [...]

  6. Neophyte Says:
    September 27th, 2007 at 12:56 pm

    Unfortunately it is only a matter of time that the other carmakers follow suit. GM has already capped all SALARIED medical monthly copays.(This includes all retirees.) ANY increase in the system and the individual will have to pay the difference. My co-pay is currently about $225.OO a month with and HMO (in addition to drug option copay )as an active employee. An ever increasing at 9-14% a year medical coverage cost increase is certain.
    The ‘golden years’ may not be so golden if we do not reign in health care costs. I wonder how much of the costs go for indigent users (illegal aliens) and litigation costs? There are a lot of hungry lawyers out there.

    As for the UAW members? No wonder the working world considers you spoiled and spoon fed. You are not living in the real world and the global economy. GET REAL !

    “TIMES THEY ARE A CHANGIN’”

  7. plonkee Says:
    September 27th, 2007 at 1:53 pm

    My instinct says that this is better than bankruptcy caused by excessive quantities of retirees.

  8. William Says:
    September 27th, 2007 at 3:16 pm

    I dont understand the broken promise. If you sign on with a company and they tell you that these benefits are given to you for x year and x amount then that is an obligation. Of course now companies are saying its not financially possible to keep the promise so we will break it or change it. So why do is their credit not damaged like mine if i changed/modified my contract with my mortgage because MY LIFE took a turn for the worst maybe unemployment or disability after all i DIDNT SEE IT COMMING.

  9. Jeremy Says:
    September 27th, 2007 at 5:04 pm

    William, these benefits are not a contract. When you take out a loan or make a purchase with a credit card, you are entering a contractual obligation. Just because you work for a company doesn’t mean you enter a contract that says “You are guaranteed this health benefit for as long as you work.”

    A group health plan is strictly optional. It is no different than if a company that used to offer a company match with their 401(k) suddenly says, “sorry, starting January 1st we’re not going to be matching contributions.” Nothing ever said this was an eternal benefit or a specific contract. Sure, it might have been an attractive benefit to help attract new employees or keep employees from leaving, but the company is certainly under no obligation to maintain it.

  10. sam Says:
    September 27th, 2007 at 5:27 pm

    I think that the point of the article is that companies are finding more and more that covering retiree health benefits is too expensive. A cautionary tale for employees assuming that this is a guaranteed benefit forever.

    As for the $1800 per year, my mother gets a Medigap policy for about $75/month from AARP and pays another $30/month for prescription coverage. Well under $1800/year for both of those policies. And totally out of her own pocket.

    The moral of the story is that medical insurance and medical coverage is not free and we should quit pretending it is. Assuming that since the company we work for, or the government, is footing the bill that it isn’t costing anything is wrong.

  11. neophyte Says:
    September 27th, 2007 at 7:01 pm

    Just a note “FREE” lifetime healthcare” just does not exist in a global economy today. Someone has to pay for it. When the cost increases by leaps and bounds some serious provider housekeeping needs to be done quickly or you have the problems you have today. Either that or you go bankrupt with the weight of retirees. predominantly hourly .
    When I started as a GM salaried employee over 30 years ago,the working world referred to us as employees of “GENEROUS MOTORS.” Well, the salaried ranks have had many,many adjustments to their working contract. It seems that the UAW has had a head in the sand attitude of what was happening to the ENTIRE labor force at the corporation and the world ,not just the UAW rank and file. Dammit ! They
    (hourly) didn’t even buy the products of the company they work for but choose to purchaser an import brand. Not too bright. They thought it was funny.

    Guaranteed retirement payouts may be a thing of the past for hourly as well since more and more companies are going to 401k programs instead of guaranteed monthly retirements.
    When I left the average electrician was pulling in about 35% more than a degreed,PE.in the course of a typical year.
    Overtime (whether worked or not ) ‘rockin chair’ money helped a lot. Then when the overtime dried up they cried even louder. IT’S UNFAIR HUH ?

  12. neophyte Says:
    September 27th, 2007 at 7:57 pm

    Interesting article

    Ihttp://body.aol.com/condition-center/smoking-cessation/news/article/_a/smokers-more-likely-to-develop-dementia/2007092610390999000

  13. Dr. D Says:
    September 28th, 2007 at 2:21 pm

    When companies made “promises” to employees for lifelong health care, there was an assumption that people would die at a much earlier age. Now those benefits are impossible to maintain and keep the company viable.

    The Baby Boom generation is dragging down the country piece by piece. Ford is just trying not to be one of the first pieces by offering them a reasonable compromise.

    Considering my generation is getting no pensions, and social security is looking less likely by the day, forgive me if I don’t give a crap about these greedy oldsters.

  14. William Says:
    September 28th, 2007 at 2:37 pm

    Just to add to the pile So when a company says to me “come on board for these benefits” i should know that this is NOT a true statement on their behalf that really they are saying “come on board for these benefits IF we can afford or wish to keep giving them to you”. See the difference when i start working for a company a LOT of decisions have to be made on my part such as salary, health benefits(long term and short term) so after consideration i decided whether to go with a company or not. I also dont agree that just because i work for a company that they automatically should give me lifetime benefits BUT IF THEY SAY they will and that is how they attract employees then why ISNT that a contract. They tell employees that they WILL PROVIDE the benefit and for how long. They employee didnt barter those agreements or insist on them and force the companys hand. We all sign a benefits agreement when you join a company and that clearly states what the company is going to pay for and what comes out of your paycheck.

  15. Neith Says:
    September 29th, 2007 at 12:25 am

    well, actually, in the Union case, it is an actual contract, isn’t it? I mean, that’s the whole point of being a Union employee – you pay union dues and all that mess in order to be covered by the union negotiated contract. That seems to me to be a different sort of agreement than Average Joe who takes a job with X benefits. If the company changes them to Y benefits in midstream, he doesn’t really have much of a leg to stand on in a contractual sense, but Union Joe has an actual negotiated contract. That’s the reason REnegotiating the contracts is so problematic, right?

  16. » Weekly Roundup: Heroes Is An Amazing Show on Blueprint for Financial Prosperity Says:
    September 29th, 2007 at 7:12 am

    [...] JLP talks about the changing face of healthcare, which is about the GM-UAW. [...]

  17. neophyte Says:
    October 2nd, 2007 at 8:07 am

    This hurts because it is unfortunately all to true.

    http://www.spectator.org/dsp_article.asp?art_id=12103

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