House Bill May Roil Retiree Health Care

• David Hogberg
• On 6:27 pm EST, Wednesday November 4, 2009

Efforts by House Democrats to protect retiree health benefits could end up doing just the opposite while also undermining their vow to keep the health care overhaul from adding to the deficit.

Section 110 of the House health care bill would prohibit employers from altering health benefits for retirees enrolled in employer-sponsored insurance plans. It would bar employers from increasing premiums or reducing benefits by more than 5% annually unless active employees get the same reduction in their health care benefits or the employer gets a waiver from the Labor Department.

But it would only apply to current retirees. Companies could discontinue benefits for future retirees. The provision might make that more likely, adding to federal health obligations down the road.

The provision also would create temporary "reinsurance" subsidies for employer-based retiree plans.

"This section is really troublesome," said Rep. Phil Gingrey, R-Ga. "Companies that need to make sound financial decisions, if they can't get retirees to pick up more of the cost, they'll just stop offering those benefits."

But liberal supporters say it offers much-needed protection.

"This is an important provision that attempts to stem the tide in the erosion of retiree health benefits," said Alexander Hertel-Fernandez, a researcher at the union-backed Economic Policy Institute. "Employers are already shirking their responsibilities and pushing their employees onto public programs."

If companies stopped providing retiree benefits, that could mean that retirees aged 55-64 could become eligible for Medicaid or government subsidies to buy health insurance on an exchange. Retirees 65 and over would likely end up on Medicare.

President Obama has pledged that reform will cost about $900 billion over 10 years. Upon releasing the latest version of the health care overhaul last week, Speaker Nancy Pelosi said: "The bill is fiscally sound, will not add one dime to the deficit."

The Congressional Budget Office estimated that the bill would cost a net $894 billion and reduce the federal deficit by $104 billion over 10 years. (The gross cost was $1.055 trillion, and last-minute changes have likely boosted that to $1.2 trillion.)

The CBO stated that its initial estimate "does not reflect the impact of section 110." It did not respond to questions about whether it would estimate those costs.

But they could be substantial.

In 2005, 12.5% of private-sector establishments offered retiree health benefits, according to the Employee Benefit Research Institute. That's down from about 20% in the 1997, though it has hovered around 12% since 2000.

The Census Bureau reports that 22.9 million seniors aged 55-64 have employer-based coverage. The report doesn't say how many of those are retirees. Some 13.2 million seniors 65 and older receive some form of employer-based coverage -- though the data don't make it clear if they get full private benefits or just "Medigap" coverage for expenses Medicare doesn't pay for.

"The vast majority of private plans are Medigap," said James Gelfand, senior manager of health policy at the U.S. Chamber of Commerce.

Dropping Medigap benefits would not directly lead to higher Medicare costs. But critics suggest that seniors without such policies would push harder for expanded Medicare benefits -- and fiercely resist any bid to curb Medicare spending.

The Chamber, along with 11 other business groups, including the National Association of Manufacturers and the National Retail Federation, sent a letter to Pelosi back in July arguing that "mandating benefits in this manner significantly increases both the cost and risk to the employer of voluntarily providing retiree health plans at all."

Gelfand also stated that Section 110 was a variation on a bill by Rep. John Tierney, D-Mass.

Tierney sits on the Education and Labor Committee, one of three panels that drafted the House bill. His office did not respond to requests for comment.

Retiree Reinsurance

Some argue that the reinsurance portion will stabilize employer-based retiree benefits.

"The retiree health insurance pool is unstable," said Hertel-Fernandez. "Given its high costs and small size, costs can vary a lot from one year to the next. It's one reason employers drop coverage or decrease the value of their coverage. The reinsurance can bolster the prohibitions on reducing coverage."

Under Section 110, retiree plans can submit claims to the Department of Health and Human Services. If the claim is more than $15,000 but doesn't exceed $80,000, HHS can then reimburse 80% of the claim.

HHS would pay claims out of a temporary $10 billion "Retiree Reserve Trust Fund." But nothing would prevent Congress from replenishing the fund if it ran short.

Buzz up!