IBM plans to give about 110,000 retirees payments to buy coverage on a health-insurance exchange rather than continuing to provide benefits through its own company-sponsored health plan.
The company says the growing cost of healthcare is making its current retirees' benefit plan unsustainable with large premium increases, The Wall Street Journal reports
. Further, moving retirees to health insurance exchanges will keep it from having to manage their benefits.
IBM has told its retirees in recent weeks that if they want to keep receiving coverage, they need to pick a plan offered through Extend Health, a private Medicare exchange run by Towers Watson & Co. in New York. Extend Health, like many other private health-insurance marketplaces, is similar to the public exchanges proposed through Obamacare.
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IBM's move is being seen by experts as an example of how large companies will move coverage from their own management and pay employees and retirees a fixed sum to manage their own healthcare plans.
IBM retirees who will eligible for Medicare will see their current retiree coverage end after Dec. 31, according to documents The Wall Street Journal reviewed.
Private health-insurance exchanges, which are similar to state-run organizations, present a range of policies and allow participants to choose what best meets their needs.
In IBM's case, the company will give its retirees an annual contribution through a health retirement account so they can buy Medicare Advantage plans and supplemental policies to fill in the gaps left by Medicare coverage.
The retirement accounts can also be used to pay for other medical expenses, but retirees who don't enroll in a plan through Extend Health will not receive the funding.
Chief Health Director Kyu Rhee said IBM is making the move to allow retirees more-sustainable coverage, not to cut costs, and that the insurance exchange can provide retirees with a wider range of plan, while controlling how IBM's contribution to their coverage is spent.
And while retirees' insurance plans are changing, IBM actually capped its health contributions for retirees about 20 years ago, and recently quit contributing to retiree coverage for people hired after the end of 2003.
Extend Health said the move to private health exchanges has been profitable, and it has signed up about 300 companies, including DuPont and Caterpillar.
While DuPont began using Extend Health in January, Caterpillar has been a client since 2009.
Bryce Williams, managing director of Towers Watson Exchange Solutions, the parent company for Extend Health, said exchanges allow companies to continue offering retirees' insurance, and predicts that at some point, "every single retiree will join a Medicare exchange."
Retirees are increasingly losing coverage through their former employers, according to a survey by the Kaiser Family Foundation. Only 28 percent of companies offering health benefits covered their retirees in 2013, down from 34 percent in 2006 and 66 percent in 1988, the survey said.
IBM retirees will learn what the subsidy is on about Oct. 1, and both IBM and Extend Health said their coverage will be equal to or better than what they already have.
But labor advocates disagree.
"[This is] just another takeaway of retiree and employee benefits," said Lee Conrad, national coordinator for the IBM Global Union Alliance.
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