Monday, September 16, 2013

"If you like your health care plan, you will be able to keep your health care plan."

Retiree health insurance has long been available to those who spent their careers at large companies that historically have paid above average wages.  These programs were designed to both bridge the time period between retirement and Medicare eligibility and to supplement Medicare.  The first goal makes sense from a company perspective.  By making health insurance a sunk cost, older employees know they can leave the firm without losing their benefits.  The firm gains because it can then replace the worker with a new hire making a much lower salary.

The second goal makes much less sense from a company perspective and IBM has become one of the first to make a move.  With health insurance soon to be available on government-sponsored exchanges, IBM retirees will receive a fixed dollar amount that they can use to buy their own policy.  IBM is moving from a defined benefit to a defined contribution approach, in all likelihood shifting most of the risk of rising premiums to retirees.

When will companies decide to do the same thing with their employees?


  1. They already have. Trader Joe's is announcing that they are removing health insurance coverage for employees working less than 30 hours. Instead, they are giving them a one-time cash contribution for the employees to use as they wish, presumably to buy insurance at the exchanges.

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