From the Daily: Pension pains

The city’s concern about its obligations to retirees is a local example of a national trend toward reducing or eliminating health benefits for retired workers. Companies are aggressively cutting health benefits to retirees, including union retirees whose benefits are guaranteed in collective bargaining agreements. Cutting retiree health benefits, though convenient for corporations or local governments, will only exacerbate the problem of rising health care costs. Ann Arbor should make sure to protect its retired workers’ health care benefits, and courts must reject the often specious arguments used to deny benefits promised in union contracts.

Corporations seeking to control steeply rising health care costs have cut benefits to retired workers for years, and some observers believe companies will entirely stop offering health benefits to retirees over the next few decades. Thus far, cuts have come mainly at the expense of retirees from small businesses and salaried employees at large corporations. A 1998 federal court ruling held that General Motors was justified in using a clause reserving the right to alter benefits in its decision to cut coverage it had offered to 50,000 employees as an enticement to accept early retirement, even though company brochures promised health coverage “at GM’s expense for your lifetime.” Since this ruling, former salaried employees fighting benefit cuts have had little luck in court.

Employees who were represented by unions have fared better, as their contracts stipulated health benefits to retirees. Companies looking for ways to cut health costs, however, are in some cases aggressively fighting to escape their contracts with retirees. In order to avoid the contract language, corporations have used questionable arguments, such as claiming clauses in health plan documents trump the union contracts or saying that guarantees of lifetime coverage refer not to the employees’ lifetime but to the duration of a particular contract. In several cases, companies have sued former workers for the right to cut benefits, singling out those who moved after retirement in order to find a federal court more amenable to the corporation’s arguments.

Cutting benefits to retirees is expedient for corporations and a sure way to improve balance sheets. It is not, however, a rational solution to rising health care costs. Retirees and their spouses who lose coverage will avoid routine and preventative medical treatment and will instead seek treatment only when catastrophically sick, thus raising overall health care costs. The market’s shift away from retiree health benefits will place an additional strain on Medicare, which is already ill-equipped to handle soon-to-retire boomers, and threatens those too young to qualify for Medicare with financial ruin in the event of serious illness. A better solution might be found by looking at the overseas competitors v.s. corporations often cite as a reason to cut retiree benefits; many overseas companies have no significant health care costs since their nations guarantee universal health coverage.

Here in Ann Arbor, rising insurance premiums and a slumping stock market have interfered with the city’s plans to pay for health with benefits using from a health-care fund. The city may soon have to use the health care fund’s principal to pay insurance premiums rather than allowing it to grow. In this situation, the city’s move to re-evaluate its health benefits to retirees is understandable, and there may indeed be areas in which costs can be cut while still providing for its retirees. Especially in light of the recent wave of early retirements offered by the city to its older employees, however, the pension review committee must make sure that it does not violate its retirees’ trust and continue a depressing national trend by eliminating health benefits.