Potentially thousands of former IBM workers and their spouses in North Carolina are learning that their onetime employer will soon stop providing health insurance and will opt instead for paying retirees an allowance so they can buy their own coverage.
The move is part of a dramatic shift embraced only recently by GE, Caterpillar, DuPont and other global businesses that are looking for ways to stem soaring health care costs as their ranks of retirees swell. It signals that businesses are getting out of the insurance business altogether, a change that creates anxiety for retirees who wonder about the long-term commitment of their former employers in providing benefits that were once thought to be guaranteed.
IBM is shifting about 110,000 U.S. retirees and spouses to Extend Health, a private insurance exchange owned by New York-based Towers Watson & Co. The exchange already sells insurance to more than 500,000 retirees from some 300 companies, most of that growth occurring just in the past several years.
Extend Health offers thousands of insurance plans around the country and will offer the ex-IBMers more choices than they have currently with IBMs self-administered options. But IBM has not disclosed how much money it will contribute to its retirees health accounts to offset the costs of insurance policies available through Extend Health.
Thats the big question: If its a couple hundred dollars or if its $3,000, said Mort Lurie, 80, who retired from IBM in 1995 as a senior programmer after 30 years with the company.
Lurie said he and his wife currently pay $272 a month in IBMs company-subsidized plan, which covers prescriptions, hospital stays and other medical costs.
IBM, which opened its Research Triangle Park facility in the 1960s, at one time employed at many as 10,000 people here. The company no longer discloses its local head counts but remains a major employer.
The retiree policies supplement Medicare, the federal insurance program that typically covers about 60 percent of medical costs.
IBM said it made the move for the benefit of the retirees. The company capped its contributions to retiree health care in the 1990s, and subsequent cost increases have been borne by the retirees, said spokesman Doug Shelton.
Furthermore, IBM offered assurances that the retirees will fare better financially in the private insurance exchange.
The Extend Health Medicare Exchange will offer benefits not available under IBMs existing group plans, IBM said in a statement. The vast majority of retirees will have more choice and flexibility in plan options at the same or lower cost than they are paying today.
The new policies will go into effect Jan. 1.
If the retirees are not happy with their options, they will not be able to buy subsidized insurance under the Affordable Care Act because it is not open to people who have coverage through an employer, Medicare or Medicaid.
Some retirees will love it, some will hate it, said Paul Fronstein, director of health research at the Employee Benefits Research Institute in Washington.
I could see an 85-year-old saying, What do you mean I have to choose my own health insurance? Ive never chosen insurance in my life.
AARP health care lobbyist Ariel Gonzalez said the exchanges offer transparency, allowing customers to compare health plans and prices. But as corporations are focused on cutting costs, the exchanges dont necessarily guarantee savings. It remains unclear whether IBMs retiree allowance amount will be pegged to inflation, or even whether IBM will pay retirees an allowance in the future.
The unknown is, What will the cost of health care be in two, three, five years from now? Gonzalez said.
Towers Watson officials predict that their nationwide insurance pool of retirees will top 1 million people by 2020 and that the majority of retirees will get their insurance through exchanges in the future.
Lurie said hes satisfied with IBMs current plan.
He is concerned not only with the cost of his supplemental Medicare insurance next year, but also about the terms and conditions of the Extend Health plans.
We have certain doctors we use and we want to continue to use, Lurie said. Weve been seeing those doctors for years.