Duke Energy, the nations largest electric utility, became the latest corporation to opt for ending a long-standing company practice of insuring its retirees, a cost-saving approach already embraced by IBM, Time Warner, Caterpillar, General Electric, DuPont and many others.
About 14,500 retirees of Duke Energy, Progress Energy and others, including 6,600 retirees in North Carolina, began receiving notices last week alerting them that the utility company will no longer provide retiree insurance to supplement Medicare coverage. Instead, the Charlotte-based power company will pay retirees an annual stipend, and the former employees will be responsible for picking their own insurance.
To qualify for the companys stipend, however, the retirees will have to buy coverage from one insurer: UnitedHealthcare. The changes apply to all Duke retirees except unionized retirees in Florida.
The move affects not only retirees ages 65 and older but also their spouses and dependents ages 65 and older who receive retirement benefits from the company or any of its predecessors or subsidiaries in six states. That includes Progress Energy, Carolina Power & Light, Cinergy, Florida Progress and others. We have seen double-digit annual increases in the cost of Duke Energys retiree healthy coverage through the years, the company told retirees in a letter. We are therefore announcing a change in the way retirees age 65 or older can purchase health coverage that we believe provides more plan options and better value.
IBM and Time Warner made similar announcements this month, and other companies are expected to follow. The primary benefit of offloading retirees from the companys ledger is lower costs, and private insurance exchanges have arisen to take up the slack for businesses looking for options to manage runaway health care bills, said health care benefits expert Skip Woody, a principal with Hill, Chesson & Woody in Durham.
The stipend can be a fixed amount, not escalating year to year, Woody said. You can freeze the cost at what it is today.
Duke and IBM have not disclosed details of the plans so far, but plan to release additional information in the coming weeks.
The new policies go into effect Jan. 1.
The retirees will not have the option of buying subsidized coverage under the Affordable Care Act, the nations new health care law, because they already get insurance through Medicare.
Smorgasbord of options
Meanwhile, Duke and IBM have assured retirees that their options will be better as a result of the changes. Duke spokesman Dave Scanzoni said retirees currently choose from between two or three plans but will have many more options from UnitedHealthcare.
The subsidy amount will depend on years of service and on other factors.
Itll likely be a smorgasbord of options, Scanzoni said. For many retirees, they will actually see savings.
Scanzoni said that in 2014, the health care stipend will be the same as the companys contribution to retiree health plans this year.
Many employers began fixing their contributions to retiree plans years ago to rein in costs, said Paul Fronstin, an analyst with the Employee Benefits Research Institute. He also said that its common to give retirees the choice of a single insurer to shop with.
Several local Progress retirees said they were blindsided by the announcement and are skeptical that theyll be better off.
How can that be possible? said Jerry Hargis, a Raleigh resident who retired from Progress in 1995 after 30 years with the company. Well get a deal maybe this year, but next year what keeps them from going up?
Hargis pays $182 a month for himself and his wife under Dukes Medicare supplemental plan. He suffered a heart attack in May and spent four days at Rex Hospital. The tab, mostly covered by insurance, was $100,000.
That was really disturbing, getting that letter, Hargis said.
Billy Yarborough, who retired in 1999 after 29 years with Progress, said hes anxious about the future. He pays $69 a month in Medicare supplemental coverage now.
They gave us two months to sit here and worry about it, he said. We dont know what the rates are going to be.