Quote-of-the-day mailing list
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Subject: qotd: Large employers moving retirees to private exchanges
Date: Mon, 9 Sep 2013 11:10:10 -0700
From: Don McCanne <firstname.lastname@example.org>
To: Quote-of-the-Day <email@example.com>
The Wall Street Journal
September 8, 2013
Time Warner Joins IBM in Health Shift for Retirees
By Spencer E. Ante
Media-company Time Warner Inc. plans to move its U.S. retirees from
company-administered health plans to private exchanges, according to a
person familiar with the matter. The company will allocate funds in
special accounts that retirees can use to go shop for coverage, the
The news comes as International Business Machines Corp. also plans to
move about 110,000 of its own retirees off its company-sponsored health
plan to a Medicare insurance exchange.
President Barack Obama's health-care overhaul calls for such exchanges,
which will go live next month, and employers are looking at similar,
privately administered exchanges as an alternative to offering their own
Yet while these efforts are just ramping up—and creating a good deal of
anxiety in the process—hundreds of thousands of retirees are already
using exchanges to pick Medicare plans, and many more are likely to do
so in the months ahead as companies look for ways to fix their
health-care costs by moving to the "defined contribution" model they
adopted for pensions years ago.
Extend Health, the Utah-based exchange owned by Towers Watson & Co. that
IBM picked for its retirees, was founded in 2004 but has grown quickly
recently as more employers have signed up.
Extend Health has signed up around 300 companies, and the pace is
quickening. It had just three corporate customers at the end of 2007 and
just 76 at the end of 2010. About a third have joined in this year alone.
Bryce Williams, managing director of Towers Watson Exchange Solutions,
which runs Extend Health, said the exchange has moved more than 500,000
retirees over to its service. IBM will add to that total when it starts
moving retirees over next year.
Instead of subsidizing retiree health premiums directly, IBM will give
retirees an annual contribution through a health-retirement account that
they can use to buy Medicare Advantage plans and supplemental Medicare
policies on the exchange, as well as to pay for other medical expenses.
IBM retirees have a big incentive to pick insurance through plans
offered by Extend Health: Retirees who are eligible but don't enroll in
a plan through Extend Health won't receive the company contribution.
Extend Health said nearly 50 companies in the Fortune 500 have become
clients, including Caterpillar Inc. and DuPont Co.
The approach was adopted for active employees last year by Sears
Holdings Corp. and Darden Restaurants Inc.
Comment: We already knew that employers were canceling retiree coverage
in their company-administered health plans and switching to defined
contribution approaches which place the risk of future health care
increases onto the backs of their retirees. What is new is the
acceleration of this shift by large employers who are taking the easy
way out by using private insurance exchanges - a new intermediary that
adds to the profound administrative waste already inherent in our health
What is next? Sears Holdings and Darden have already adopted these
defined contribution approaches for their active employees. When IBM,
Time Warner, Caterpillar, DuPont, and the others that are sure to follow
find that these new retiree programs are so successful in controlling
the employers' costs, how soon will it take them to shift their active
employees into these plans? Even the union-negotiated plans are at risk
since unions have lost much of their negotiating clout.
Middle-income Americans are already feeling the crunch. They realize
that juggling cost-of-living, education expenses, defined contribution
retirement funds, housing and transportation, and other costs is
becoming much more difficult as the American Dream is being slowly
chiseled away. They know that it is happening, but their lack of taking
an activist stance seems to suggest that they don't know what to blame
Well, it's pretty obvious. We have a government of, by and for the one
percent. Unless the ninety-nine percent wake up, we'll soon see virtual
moats around their castles. In fact, just try to get close enough to
knock on their doors today, and you'll see what a private police state
for the one percent is like.