Retiree Health Benefits

Retirees beware. Those promises of health insurance coverage from your former employer could evaporate like mist on a spring morning.

Over the last several years, several major corporations have reduced or eliminated health care benefits for retirees. Now a recent federal court ruling has opened the door even further to allow companies to alter the promises they once made to employees about health care coverage in their golden years.

A January ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati upheld General Motors' right to reduce the full health insurance coverage it had promised former employees.

Changes in Retirement Health Benefits

Olena Berg, associate secretary for the Labor Department's Pension and Welfare Beneficiaries Administration, called the court decision a "tragedy" and the American Association of Retired Persons (AARP) has said that the decision does not bode well for future retiree benefits.

The federal appeals court ruling was the latest episode in a legal battle stemming from a class action suited filed by 84,000 retirees against GM in 1988. The ruling overturned a decision by a three-judge panel that had sided with the plaintiffs.

The former GM employees contended that the company promised them full health care benefits for life while they were employees but then attempted to trim those benefits and add costs after they had retired.

General Motors conceded that it did change the plan but that it was permitted to do so under stipulations outlined in the pension plan documents it filed with the federal government. Besides, GM said, it only sought "modest cost-sharing" from its retirees in the form of new monthly payments of $6 for individuals and $14 for married couples where previously none were required and as well as higher deductibles and copayments.

The appeals court sided with GM, ruling that the company had taken the necessary legal steps to be able to change its promises in the future.

The problem for the GM retirees -- and workers everywhere -- is that they were unaware that federal documents that permitted the company to make changes in benefits even existed.

The GM retirees now hope the Supreme Court will agree to hear the case and reverse the appeals court ruling.

Health care coverage for retirees has become a major issue in recent years as employers try to cut expenses and retirees face an ever-increasing share of rising costs.

Ten years ago when the suit against GM was filed, 37 percent of retirees received health care coverage from their former employer, according to the Labor Department. By 1994, that number had dropped to 27 percent. Many of those who still have coverage are being asked to pay more of the costs.

Understanding Retirement Benefits

So how do you know here you stand? The key to understanding your retirement health benefits lies in the documents governing your plan.

Private sector employers are not required to give retirees health benefits. And even when employers do offer benefits to their retired workers, nothing in federal law prevents them from cutting or eliminating those benefits -- unless they have made a specific promise to maintain them.

Employers are required to provide you with a copy of your plan's Summary Plan Description (SPD) -- which describes all the terms of the health care plans -- within 90 days after you become a participant in the plan.

For retirees, the SPD that was in effect when you retired is the controlling document. You should save a copy of it.

If the SPD or other controlling plan documents -- such as a collective bargaining agreement or an insurance contract -- give your employer the right to change the terms of that plan, you may lose coverage any time during your retirement.

To learn how to evaluate your retiree health benefits, contact the Labor Department's Pension and Welfare Benefits Administration at (202) 219-8776 or visit its Web site.

The steady decline in retiree health benefits is one of the main reasons President Clinton has proposed that early retirees be allowed to buy into the Medicare system before the traditional eligibility age of 65.

The AARP commended the president's proposal, with Executive Director Horace B. Deets congratulating Clinton for trying to expand access to care for the "hundreds of thousands of older Americans who can't find or can't afford health insurance."

But many in Congress oppose the idea of expanding a federal program that already faces serious financial problems. And the health insurance industry worries that expansion of the Medicare system would undermine private sector programs.

(Mary Beth Franklin is a personal finance writer based in Washington, D.C.)