• I_ASB Statement No. 106_U on MMA Postreth r_YTrable ement OP STATEM Benef| Ets NT Other Than Pens|ons STATEMENT OF Ta D Table b ALLAS le 4 3 gALIgDURV inflation will exceed general int'lation by 3.5 percentage points in the years 1988 to 2001, by 2.75 average 15 percent by 1work 0 percent for public (Towers, employers l%rr|n, l%rster (Piacentlnl, & Crosby 1989), Inc.); implying annualthatnetpublic _ncorne of •Both coverage taxC•ompany attorneys, private Some to compan|es S C' and ocial however, _anges public Security tohave about Ret flnanclng disab iree elected whether ility Hea oflth to rec retiree or take i_ pene ients not t|health a ts the one-tlme aged Ball benefits 62approach or charge older are against l_kely whhout Is permlss|ble totheir be anylimited wahlng under in tax percentage law. points from the year 2016 OF on. DALL PRES Table ASIDENT SA 1LISBURY some the period. employers In future divid companies ua asare lshealth more A Health may gedcare likely decrease 62Insurance -6 inflation 4 to in provide F between ami continues Coverage lies this 30 Where percent benefit. under to One increase. and Current or 60 MDemographic or percent, eLaw Memb and by ersone trends Rece estimate iveand d earnings to comply with Retirees FASReceiving 106. General Health Electric Coverage Company announced Table 2 5 All EBRI tabulations EM of EMPLOYEE the PLO August YEE 1988 B BENEFIT ENE Cu F rIT rent RESEARCH RESEARCH Population Survey INSTITUTE INSTITUTE are for the civilian FASB Statement No. 106, "Employers' Accounting for Postretirement Benefits Other (Integrated Estimated Social Administrative Security Coverage in 1989 After Services, by Retiree Enactment Health 1990). Health Insof urance H.R. Coverage 3205 Covefor rage Individuals and Major Aged Activit 60-64 y A therecent history September survey of health of 16 1 that from ,100 care itcompanies Past costs would Emp in take the loyer that United a, one-time offe by rFirm States retir pretax Size eesuggest health and charge Industry, that benefits of continuing, $2.7 showed billion if that noninstitutionalized population of the United States living in households. • Public Employer-Provided Attitudes BE Towards FORERetiree THE Retiree SU Health BCOMMI Health Status TFEE of Persons ON HEALTH Aged 40 and Over, Som Than e comp Pensions anie" s a (F re AS settin 106) g mapproved up hybrid p in lans Decembe that c romb 199 ine 0---a rsp equi ects res of liabili severti ales for nearly EBRI slower, against research one-half growth 1991 found had in first-quarter spending changed that more for or earnings. than planned the elderly 4.1 August to million Financial 'schange health 1988 individuals analysts their care plans is inevitable. have aged as said a62 result to the The 64ofwere FAS in 106. a 6 The Civilian Health and Medical Program for the Uniformed Services (CHAMPUS) provides health COMM by AgeITand FEE Family ON WA Income, YS AND August MEANS 1988 retiree health benefits to be recognized explicitly on companies' balance sheets. FAS Some Number family different • In analysts where 1960 and types ,Percentage at 9 believe of percent least plans. one the o Procter of f member market tIndividuals he population and has received Gamble already Aged wa Social s has 40 taken agand used edSecurity 6these Over 5an and ESOP with liabilities benefits over.and Employer Byin 401(h) into 1990, 1989 account, this Sponsored plan (table 5). Twenty-eight combination company's could percent strong leave ofbalance surveyed retireessheet paying companies allowed more.had itThis take increased increases the hit at employee the one need time,p for ras emium did insurance coverage for dependents of active duty military workers while the Civilian Health and Major Activity Last Week U.S. HOUSE OF REPRESENTATIVES and 106 their applies disclosure many ofon thethe same financial principles statements that were will used not significantly in accounting affect for pensions stock cont This (HSOP) In ra ibu includes recent proportion tions to Retiree fund EBRI wi disabled thin its had survey Health future the increased workers, past conducted Coverage retiree two to early benefit years 12by by percent, retirees, Work The or costs, exGallup peand Status cted beginning and ittheir Organization to is and expected do dependents. Sex, in so fiscal inAugust , 1991, to 59 year increase percent 18 1988 Fifty-five 1991-1992. percent toof began individuals FirmIBM, Size which to findtook ways a charge to finance of $2.3 retiree billion health earlier Cov care ered this inby the year. Own future. In addition, This prospect is Medical Program for the Veterans Administration (CHAMPVA) provides similar coverage to the Before After Present Employer Past Employer T-82 NOVEMBER 5, 1991 market This (F respondents ASplan nearly 87 prices. and allows 24 who FNevertheless, AS percent for 88) had assets to not in other the to yet considering grow next retired postretirement 40 tax years said free, the they as and magnitude the beexpect nefits funds baby ( are boom to for of receive immediately example, the ages. retiree retiree These health health available health changing coverage to , to percent likely and dependents require ALCOA Indu toof force sdeductibles, try these of reti announced continued individuals red milita and ryreevaluation a 14 wo one-time were rke perrcent s. covered pretax decreased of how bycharge employment this Employer benefits. care of $1 isbillion, The financed Plan based survey Lockheed coverage and also who found and should 11 that, Covered Covered by Source of Primary Coverage a Enactment Enactment Chan_e Primary Source of Coverage a Total Workin_ b Retired c Other d Retiree Health Coverage 7life EBRI insurance announced estimates, may long-te $1 ovebillion, rsrta m te the care and numbe insurance USX r of announced people , and aged housing). 60-64 $2-3 receiving billion. It applies group to health curcove rentrage and under while liabilities, offset insurance demographics none the accounting putting of coverage the companies them are through liability on likely financial had their (since to have changed former the statements serious funds to employer aare implications defined is in unappealing 401(h) (Employee contribu accounts). for ti the to on Benefit many financing type The Research companies. of IRS plan and hasin pay. percent were covered by Medicare (table 5). The remaining 34 percent were covered No Retiree Covered by by Spouse's Covered by Spouse's No Retire_ H.R. 3205. The analysis assumes that all workers would gain coverage under an employment based futu Total re (thou retirees, sandstheir ) beneficiaries, and qualified dependents. 10,358 Even I by subsequently Institute amindividually pamong delivery leased /The companies to sent of Gallup ap purchased health pear out Organization abefore care field thatprivate services advance directive you, th health is Inc. because, fund a suspending fternoon , 1991). insurance retiree overall, Sixty-five tohealth future d(15 iscu the s percent), s obligations, determination elderly percent retiree use health of those very more letters benefits. few who have for plan Agethe and past two years, 5 percent Health expected toEmployer make 'such s (thousands) a change Employer by 1991 Employer's (A. Foster Employer (in thousands) Work Status Current Employer a Former Employer Hea 1th plan. However, some employers may choose to enroll their employees in the public plan rather than Income Total Coverage Plan Plan Plan Plan fully to retire funded health before care the age obligations. services 65 expect than toothers receivein coverage the population. compared with 50 percent of those My H I HSOP CHAMPUS iggins appreciat •testimony In ,arrangements, 1988, 1990). e /CHAMPVA th43 will e opercent ppexamine ortu pending nity of (4 those the percent), to notice testify newly agedMedicaid from bef adopted 40ore and the yo over (2 u national accounting tpercent), his had afternoon. office. retiree standard or did health EB not RI for have h coverage as published health and Sex Total Direct Indirect Direct Indirect Coverage provide coverage. In addition, part-time workers may not be eligible for their employer's plan Firm Size Total 4,155 812 1,475 1,867 FAS 106 requires that a liability based on the projected unit credit actuarial cost Total insurance several whoAged plan studies 60-64 coverage to retire on retiree at (12age percent). health 66 or older. care,10,683 many The provision of which of are retiree 10, listed 683 health on thebenefits attachedwas 0 a postretirement through their benefits own and or their its potential spouse's impact current onoremployer-sponsored former employer, according retiree following the expansion and would enroll in the public plan. (thousands) (percentage) Fewer than 20 3.7% method (which considers future benefits expected to be earned by the employee) be EBRI's Moreover, Some major Employment • to To companies 1991 consideration EBRI help expectations fall Based tabulations cover policy have these in forum elected may the of costs, the decision significantly examined toAugust some take of 6,58 alevel the one-time 7 when 1988 understate types of Current to (health in retire. of charge millions) plan actual Population insurance Among against 4,896 design obligations. nonretired and is their Survey. currently funding earnings -1 persons ,690to b , health bibliography. care plans. We would I will also be happy review tocurrent provide retiree you and health yourbenefit staff copies coverage of any statistics. of our 8 Head of household is defined as the family member with the greatest personal earnings. Total Employment Based 2,282 516 905 861 Othe 20-99 r Private Coverage 1,404 5.8 0 -1,404 accrued over the period from the first date that the plan grants credits toward these Announcements Finally, comply only provided 36Iwith percent will FAS consider toof would 106. nearly company General the retire all impact elderly disclosures before Electric of persons they current Company to were date through congressional eligible have announced a consistently combination for Medicare proposals September exceeded of iftobenefits their expand 16 that employer "rule- it changes S publications ocial Secur employers ity and beneficiarie I would are making sbe a happy nd in thresponse eir to depen answer dto ents any FASquestions wo 106. uld Some be you able companies may to purc have hase have at this kept 40 and over 84,180 a 57% 13.3% 11.8% 14.6% 3.2% Direct 1,487 415 695 377 Medicare 715 5,786 5,072 Total 90.0 11.8 10.5 13.2 2.9 51.5 time. 100-249 5.1 of-thumb" benefits (generally estimates. date For of example, hire) to the the market date thatestimate the employee of General is fully Electric's eligible.liability Under their Medicare Medicare would did not tfrom raditional take provide eligibility under employers a one-time plans H.R. health to 1444. cover but and charge benefits are the About early capping ofgovernment for $2.7 retirees. 13 retirees. billion percent (or limiting) against This of employer-provided allpercentage Social employer-provided 1991 first-quarter Security jumpsbeneficiaries retiree to earnings. 43 benefits health percentaged infor • In a recent EBRI survey conducted by The Gallup Organization, 59 percent 65 and over 26,524 71.5 1.0 1.8 21.1 4.5 Indirect 796 101 211 484 CHAMPUS/CHAMPVA 413 0 -413 250-499 4.3 was FAS$1.8 benefits 106,billion; the amount and theMedicare company of a company's benefits. announced Both actuarial a government $2.7 present billion pretax value and employer-based of charge benefithis ts attributed fall (Elliott,to Under order Financial 62 those $5,00 to 64 to 0with were reduce analysts andisabled, income thehave present of 63 said $percent 75 value ,the 000 company's or were of more theearly company's and strong retirees, dropsbalance futu to and 26 re the percent sheet health remaining allowed benefit for those 24 it obligation. percent take with the an Other Pr of iva respondents te who had not 636 yet retired said 152they expect to 16 receive 7 retiree 318 Medicaid 330 0 -330 Work Status 500-999 4.8 40 and income over of less 5,563 than $20,000. 90.7 1.4 1.0 5.6 1.2 Medicare 449 e 175 254 EBRI hit 1991). •employee Bib at has lprograms one And iography long time, se this rvice been charge as face did rendered committed growing IBM, is likely which tofinancial to to a pa be the took rtiless cular accurate strains. athan charge date some statistical (of accumulated $2.26 employers analysis billionbecause postreti earlier of public reme GE this npolicy t was year. benefit In This were is health dependents often insurance done of bythese limiting coverage individuals dollar through contributions in 1988 their (Social former toward Security employer. these Administration, costs Sixty-five in retirement 1991). , Uninsured 1,235 0 -1,235 Working b 42.9 11.8 4.8 3.5 0.8 22.0 65 and over 2,811 93.1 b b 5.8 0.8 CHAM 1,000 PUS/C or HAM more PVA 183 e 61.8 62 88 addition, obligation)ALCOA that exceeds announced plan asse a one-time ts will be pretax recorded charge as of a liability $1 billion, on t Lockheed he company's already benefits Applying accruing issues. these Through proportions part of its ourfuture to research, the obligation 1989 we beneficiaries, strive for retirees. to contribute EBRI estimates to the formulation that 2.6 million of capping percent the increase of those in who the plan amount to retire contributed, before age or requi 65 expect ring to a long receive service coverage period Retired 23.8 na 1.2 7.8 0.7 14.1 $5,000-$7,499 Medicaid 86 e e 70 announced $1 billion, and USX announced $2-3 billion (Elliott, 1991). A. balance • FPending oster Hsheet iggins Medicare 3 & For Co.,some Inc. Expansion Fost companies, er Higgins Proposals the Health retiree Care Benefit health s Survey: care liabili Report ties 4,requi Retiree redHealt toh be effective individuals Don • Most 't and know companies receiving responsible /no response early currently health, retirement use welfare, pay-as-you-go benefits and retirement underfinancing 14.5 Social policies. Security (paying Consistent would for retiree become with before compared employees with become 50 percent eligibleof to those receive who the plan se be tonefits. retire at age 66 or older. The Total Working Aged 60-64 c 4,282 4,282 0 Other c 23.3 na 4.5 1.9 1.4 15.4 40 and over 5,640 86.2 1.4 1.0 8.5 2.9 Uninsured 519 89 153 277 listed Care. on Princeton, the balance NJ: A. Fsheet oster Hin iggins accordance & Co., Inc., with 1990.FAS 106 will far exceed the costs that Statement health care benefits out of current earnings). our • Plan Employment charter, Design weBased do not lobby or advocate 3,163specific policy solutions. 4,282 1,119 eligibleprovision to purchase of retiree Medicare health under benefits H.R. was 1444. a major Nearly consideration one million dependents in the of 65 and over 3,449 87.3 b b 9.4 2.9 Chollet, Deborah J. "Health Care Spending among the Elderly." Working Paper 91-2. Atlanta, GA: Other Private Coverage 522 0 -522 •currently Retiree Health appear Care in financial Coverage statement footnotes. early I Industry wasdecision retirement asked toofdiscuss beneficiaries when to current retire. and legislative Among disability nonretired proposals beneficiaries to persons expand would , only Medicare also 36 be percent eligible eligibility to to Sex For example, AT&T has maintained the entire retiree health benefit cost for 102,200 $7,500-$9,999 (percentage within major activity categories) Cente Medica r fo rer Risk Management and Insurance Resea 36 rch, Georgia State Unive 0 rsity, 1991. -36 • IPrivate ntroduction Before the Subcommittee on 54.1 Health In reaction to FAS 106 and increases in health care costs, some firms have dropped Male • FASB Statement No. 41.3 106, "Employers' 8.2 Accounting 2.1 for 7.1 Postretirement 0.5 21.9 40retirees buy and cover over into would , early which Medicare. retirees. retire 5,092 totaled before The EBRI $319 proportion they has million 78.0 were analyzed in eligible of 1989. those both 2.0 for F choosing H.R. orMedicare employees 3205to2.2 and purchase if their retiring H.R. employer 1444 coverage 13.6 after to estimate Ma did rwill ch not 1be 4.3 , the Elliott, Douglas J. "Retiree Health: Issues and Implications." Presented at EBRI's September 25 Policy CHAMPUS/CHAMPVA 126 0 -126 65 and Female Government over 2,864 48.7 78.5 3.7 b 8.4 0.6 3.2 16.2 2.5 4.5 29.5 Even Benefits within these Other guidelines, Than Pensions" there (FAS are several 106)--approved assumptionsin December that employers 1990- must Total In the directly effects 1988 provision , of related 43each percent ofproposal toretiree the of those cost health onofaged health that benefi 100% 40 coverage. care ts andfor coverage ovefu rDependents tu had re 100% for retirees retiree earlywould health entirely retirees. only coverage 100% , while be eligible through others to have 100% 1990, AT&T provide pays health for benefits retiree premiums for retirees.upThis to apercentage maximum fixed jumps amount, to 43 percent based for on Forum, "Retirement Security in a Post-FASB Environment," Washington, DC: Employee Benefit Medicaid 28 0 -28 $10,000-$14,999 federal 16.4 use Rese to a those rch estimate Ins with titute,postretirement an1991. income of $75,000 benefit orliabili moreties. and Most drops important to 26 percent is the forassumptio those n In no the purchase their 1960, plans reti ow requires ree's n 9to coverage percent orchange age their liabilities and of spouse's if their the coverage the population for existing Sodal Ways current retiree type Security plans. and health (was or single Means former In aged beneficiary benefits or between joint). 65 Committee employer and toReti some in be over. , their rrecognized ees according employe By will household 1990, be rs texplicitly this responsible omay EBRI had proportion place on limits for Uninsured 407 0 -407 40 and over 11,205 69.7 3.7 4.0 17.9 4.7 (percentage within work status and gender categories) the remainder. state and local 19.4 Employm with ent Based an income of less than55 $20,000. 64 61 46 tabulations Employee about Undercompanies' health House Benefit of ca the Ways r Resea e balance August cost rchand trends Institute• sheets. 1988 Means that Current MChairman ea implicitly suringPopulation and Rostenkowski's conside Fundingr Survey s Corporat expected ( etable comprehensive Liabilit health 1). ies5 This forcare Ret include iree inflatio health Healt s n h, had on purchased their increased postretirement coverage. to 12 percent, medical and it benefit is expected promises, to increase tie the to promise nearly to 24 lengt percent h ofin the 65 and over 5,509 69.5 b 0.8 23.4 6.1 Direct 36 51 47 20 Benefits• Washington, DC: Employee Benefit Research Institute, 1987. changes in health care utiliza U.S. tion House and of delive Representatives ry, technological advances, and changes next both employment care Self-employed 40 private reform years , and proposal as or the comprehensively public baby (H.R. employers. boom 3205), ages. the restructure AThese Medicare recentchanging Bureau the eligibility plan of demographics 1.3 Labo design. age r would Statistics Overall are be , survey likely gradually most tofou have nd Total Total Retired Aged 60-64 d100.0% 13.1% 2,445 11.7% 2,445 14.7% 3.3 % 0 57.2 % $15,000-$19,999 Indirect 19 12 14 26 • Retiree Health Benefits: What Is the Promise? Washington, DC: Employee Benefit serious that in reduced • the 41 Inhealth pe implications response r to cent age sta of 60 tus to full-time byfor of this 1997. plan the newly employees In financing parti addition adopted cipan ,ts. and of employers standard The medium-sized delivery rates would and at of which health health and be the required la care care rge benefits services cost private to' inflation, provide expected because, employe basic rs H.R. companies Quake Unemployed Emplo • 1444 r EBRI ym Oats ent would a has re redesigned Ba or analyzed sed provide will be its both evaluating Medicare retiree H.R. medical 3205 coverage their 1,508 and reti plan, H.R. to reedisabled effective health 1444 a to liabilities workers 1989, estimate 109 to aged relate and the effects deciding 62--64 benefi -1 without ts of ,399 40 and over 15,310 57.7 11.0 9.1 18.3 3.8 Other Private 15 19 11 17 Research Institute, 1989. Other Private Coverage 264 0 -264 Work Status 65overall, whethe who health and futur over e amany r reinsurance cost the covered or not elderly companies is 5discounted ,396 changes by coverage use group are more to (the to health to considering 62.9 their health all current employees insurance prHearing esent care plan whether services 1.0 value) desi or are ongn pay eligible to must than are continue an excise necessary. others 2.4 also to receive be to tax inassumed. provide the toemployer- 28.4 help population. a 2 finance full a 5.4 In more theDon't two equitably year knowwai /notti ong se response rvice period , to required provide broader, under current more law. flexible 8.7 EBRI service estimates , and inco that rpo 13rate Medicareeach proposal on health care 11 coverage for early e retirees. 12 14 Employee Benefit Research Institute/The Gallup Organization, Inc. Public Attitudes on Medicare. Medicare 244 2,336 2,091 retiree health benefit or to make a limited contribution to this benefit. $20,000-$29,999 C 1988, sponsored cost percent H newly Wor AMki P containment US the ng /created C of bH elderly AM the reti Pr VA 4.1 ee public accounted and health million liability plan. 100.0 coverage individuals for Individuals controls. 334percent befo 27.5 r aged e Its not age ofRetiree 62 covered all 65 to 11.2 health a64 n edHin ealth 36 under care families percent Incentive expenditures 8.2 an employer with can 4 receive P alan Social 1.9 , plan (U.S. which such Security or will 51.3 5 EBRI Report no. G-8. Washington, DC: Employee Benefit Research Institute, 1990. CHAMPUS/CHAMPVA 116 0 -116 40 and over 13,095 48.1 17.4 15.2 16.3 3.0 Retired 100.0 Retiree na Health Care 4.9 32.8 2.9 59.3 Medicaid 2 e e 4 Companies cove Seve another Source: •rage ral H.R. Several • Public cost public aEmployee t3205 can age components companies Att 65 plan design would itudes and Benefit such on over reduce their Medicare have make asResearch (retiree U.S. Medicare the already up and Depa Medicare health the Ret Institute riree begun tment or expense Medicaid benefit Hea eligibility ltto of htabulations . make Labo reco EBRI plans would rded r,Repo age changes 1990). asrt in to of be either no. 60. companies' the insured to G-20. EBRI August defined current Washington, under analysis income 1988 plan the Current new DC: Congress, be beneficiary, updated 1989). annually or 554 The thousand to combination reflect individuals, inflati of ona an ry aging were changes, population disability is composed recipients and continued of two who pa would rapid rts: Medicaid 57 0 -57 65 and over 2,914 61.3 1.8 3.0 29.1 4.8 Uninsured 12 11 10 15 Other c 100.0 na 19.5 8.3 6.2 66.0 health care cost inflation means that current and future retirees face growing health contribution statements. public Population Employ design. ee plan. Be Survey. Overall, pla nefit ns,Redefined sea This this rch Institute, will universe dollar require 1991. benefit consists that,plans as of with ,allor persons defined other forms aged benefit 40 of deferred and plans. over Defined in the become comprehensive found eligible that medical for if H.R. Medicare coverage 3205 were underand completely H.R. the1444. health implemented Unlike expense the account. early in 1989, retirement The totaldefined Uninsured 255 0 -255 $30,000-$49,999 Hewitt Associates. Survey of Retiree Medical Benefits, 1990. Lincolnshire, IL: Hewitt Associates, 1990. contribution compens Medicare ation, plans enrollment the fo cos r tretiree of p would rov health iding have ar peostretire increased similar ment toby defined bene as much fitscontribution acc asordin 5.0 g million tplans o the fo terms r Among care beneficiaries con U.S. tribution expenses. civilian the 50 expense and noninstitutionalized state their employee account dependents replaces plans,discussed population 22open-ended offer full above, living retiree first-dollar these in health households. individuals benefits. benefits would It to is those available notaged be 40 and over 18,081 40.9 22.8 19.6 14.3 2.5 Sex Source: EBRI tabulations using the March 1990 Current Population Survey. Integrated Administrative Services, Inc. Postretirement Medical Issues and Responses. Atlanta, GA: individuals. The new enrollees would include two-thirds of the 1.2 million to 65 of EBRI rand eimburse • theEBRI analysis plan over estimates ( will Mackin dental found attribute , , vision 1990). that that ,to if the hearing all Th thepresent isthe employee is, provisions an and value increase wellness during ofof from private H.R. each care, 163205 period state employers or cont were plans of ributions ' service. fully in liabilities 1988. implemented to In the for 198 plan. 7, pensions required --the to purchase employer Medicare. allocates a specified amount to each employee's account 65 and aLess overthan 0.5 2,435 percent of the59.1 total. 2.8 4.5 29.0 4.6 Total Other Aged 60-64 e 3,956 3,956 0 Male 100.0 19.8 5.0 17.3 1.2 53.1 Actuarial Sciences Associates, Inc., 1990. aIndividuals are classified according to their source of primary coverage. Those with more than one current retiree health insurance Dallasobligations L. Salisburywas approximately $241 billion $50,000 and in and 1989 usually over , totalrelinquishes Medicare enrollment the investment would decisio have nsincreased to the employees by as much through as 5.0 million To 48 Quake percent help Emplo r individuals ym pays cover ent of afull- Ba these majo sed ti aged me rity costs, participants of some plan costs, level in while 1,915 of medical health retirees plans insurance cont of rstate ibute is 505 currently and a pe loca rcentage l provided governments of -1,410 costs to Female 100.0 7.5 17.3 6.6 5.0 60.6 McDonald, Gregory J. General Accounting Office Statement before the Subcommittee on Health, source of coverage were included in only one category based on the following hierarchy: employment President in 1988. 40 and individuals Oover ther Private(table 10,194 Cover4). age The new 37.6 enrollees 61724.0 would include 22.7two-thirds 0 12.7 of the 1.2-61 million 7 2.9 The effective date for adoption of this statement is the fiscal year beginning after had various basedhealth oninvestment their carese coverage rvice. options. The after longe This reti r r money ement an employee is at then leasthas used part worked ially by the paid fo employee r fo the r by firm thei ,tor the purchase employe lower r nearly Removing 60-64 all elderly the who twowere persons year previously wai through ting period uninsured. a combination for disabledofbeneficiaries benefits fromaged employers 62 to 64and may the based Committ insu ee rance, on Ways Medica and re, Means, CHAMP U.S. US, Hou individually se of Representa purchased tives. p 6riMay vate 1991. insurance, and Medicaid. Medicare 434 3,451 3,016 65 and over 1,145 55.6 6.6 8.0 24.2 5.6 health December insurance 15, 1992, afterfor retirement. most employers. By definition However, (as in for defined certain small, contribution nonpublic plans for the (U.S. individuals retiree Department contribution aged of 60-64 Labo , Employee and who r, 1988). the were higher Benefit previously theResearch health uninsured. expense Institute Individuals account. whose government Mackin, have a small John. Rise impact employer-provided in Stat on e total Employee Medicare Healt retiree h Plan enrollment. health Costs Moderat benefits EBRI es: and estimates Survey Medicare of Stthat ate Employee benefits. only about Health bIncludes individuals whose primary activity during the week prior to the survey was working. CHAMPUS/CHAMPVA 171 0 -171 Be •nefit EBRI Plansestimates , 1990; Summary that 2.6 of Findings million • New individuals York: Martinreceiving E. Segal, 1990. early retirement Both employers prim • ar government Considering y sou and rce non-U.S, of and the cover employer-based magnitude agplans, e befothe re ofenactment statement the programs retireeis was health effective face individ growing liabilities, ufor allyfiscal financial purchased putting years strains. beginning them private pensions) 114 thousand , the disability employer beneficiaries has no liability agedbeyond 62 to 64 the would contributions, gain Medicare even coverage though the Source: EBRI tabulations of the August 1988 Current Population Survey. CIncludes Medicaid individuals whose primary activity du245 ring the week prior to the 0survey was being reti -245 red. Source: Employee Benefit Research Institute tabulations of the August 1988 Current Population Survey. This Piacentini, Joseph S. "Pension Coverage and Benefit Entitlement: New Findings from 1988." Issue Brief health after December insurance 15, (0.9 1994. million), Medicaid (0.3 million), or CHAMPUS/CHAMPVA 6 on financial statements is unappealing to many companies. Even among Retireebenefits health under coverage Social differs Security by work would status become , gender eligible , age g to roup purchase , and fami Medicare ly American money under H.R. may Airlines 1444. not fully Generally, redesigned cover health only its plan the insurance disabled effectivecosts and January individuals in retirement. 1, 1990,with to include end stage employee renal Uninsured 573 0 -573 a Respondents currently receive health coverage from an employer which continues in retirement. dIncludes individuals whose primary activity during the week prior to the survey was looking for universe consists of all persons aged 40 and over in the U.S. civilian noninstitutionalized population living in no. 94 (Employee Benefit Research Institute, September 1989)• Retiree health benefits were originally offered by many companies in the late 1950s contributions income. (0.4 million) under companies Among H.R. would as those athat 1444. new also advance worke Nearly eligibility gain rs Medicare fund one aged rWashington, equirement million retiree 40 and coverage. dependents health over for ,DC 38. retiree obligations, Generally, 7 peof rcent coverage. earlywere Medicare very retirement Active covered few would have employees by households. b disease Includes are current eligible worker for s as Medicare well as those before who rage eported 65. that Thethey latter weregroup lookinggenerally for work and account those who for work, keeping house, or going to school. Also includes those who were unable to work, and those U.S. Congress. House. Committee on Ways and Means• Hearing on Employer-Sponsored Retiree Health November 5, 1991 and • The 1960s Costs when of FAS business 106 to was Employers booming as a result of economic expansion and there aTotal had employer A become who is second aless se job beneficiaries fully p but than rim the plan health awe ry funded inrprimary etable activi not design plans 3 ty wo and the because rking was source is obligations. that disability so aduring it met defined excludes continue of hingcoverage the beneficiaries not week dollar those Moreover men into pti who rion for o benefit. rretirement ed ,to did all th would by expectations e not nonworkers t su he In r know vey. ,su this also rv and ey their .plan be 10.1 family may ,not eligible an percent covered significantly employer income to buy were orby didp into the rcove not omises group answer red So are less urce: requi than EBRI red two tabulations to percent make using monthly of all thenonelderly Macont rch r 1990 ibutions Cu Medicare rrent ($10 Population recipients. for 1990) Survey. forNearly at least450 tenthousand years prior Insurance. Committee Print, Serial 101-55. Washington, DC: U.S. Government Printing Office, 1990. a maximum annual dollar amount after retirement, to be used toward the cost of the cquestion. Includes understate students, individuals actual obligations. who were unable Announcements to work, and homemake of company rs. disclosures to eToo were through health small very Medicare. plan ato past few be ofstatistically retirees employer a EBRI working estimates insignifican (table rela family tion 1 t.that ). member. to Among 13 thepercent number retirees ofof the aged active 4.140 million workers. and over individuals ,The 35.7resulting perce aged nt to aIndividuals individuals retirement araged e to classifi help 62 ed top according r64 efund in families their to theirretiree swhere ource of medical at prileast mary coverage. cove onerage. member Those To reti received with re mo with re Social than medical one U.S. Department of Labor. Bureau of Labor Statistics. Employee Benefits in Medium and Large Firms, bLess than 0.5 percent of age group total. liabilities sourcedate of cove were have ragenot consistently wersubstantial, e included in exceeded only and one the catego "rule-of-thumb" financing ry based ofon these the estimates. following benefits hie was rarchy: notemploymen of t benefits, r medical eceived The p 62 rojected coverage. to the health 64 re in is impact benefits families a Under minimum of from F with this AS employment 106 scheme a a forme Social has , rbeen the Security employe employee pe widely riod r.beneficiary, of s Men tuis died. 10responsible years were The or mo and 554 rerewill thousand a fo n likely r age be anyhighe than minimum r Security 1987. Was benefits hington, were DC: U.S. enrolled Government in Medicare Printing Office, in 1989. 1990.Assuming that 2 percent of based insurance, Medicare, CHAMPUS/CHAMPVA, individually purchased private insurance, and concern. women these, or.to However, Employee 9 receive thousand Ben retiree due efiindividuals ts in tohealth St changing ate, and benefits were Lodemographics, cal eligible ,Government and much because s, 1987 utilization more .of Washington. end-stage likelypatterns, to have DC: renalU.S. and adisease, reti rising ree remaining expenses The remaining individuals, for costsponso of 0.4 cove are rmillion ing rdisability age companies and working recipients thus carries under uninsured who the the would new full could bu standard r become gain den of coverage than the eligible effects under through for of thehealth cu either rrent of 55 years. All employees are automatically enrolled to prefund their retiree Medicaid. EBRI Gove • estimates In rnment reaction Printing that to 440 Office, FAS thousand 106 1988. and increases disabled beneficiaries in health carereceived costs, some Medicare firms inhave 1989. Medicare under H.R. 1444. care cost inflation if the employer does not provide increases in the amount health medical health pay-as-you-go an employment care plan benefits costs, in thei system, unless based many r own plan due they employers name. to or sign the theaneed new now program to public have amor waive higher ti plan. zer. the 7Among Other retiree-to-active-worker past workers obligations the employees whoand ,relied t99 oratios on U.S. Department of Health and Human Services, Health Care Financing Administration, 1990 Annual bEmployment based health coverage may be lower after enactment than indicated due to several contributed. and individually expegrowing nsdropped e benefi retiree purchased ts theas provision ea health rned private liabilities. rathe of retiree rcoverage than health as paid. (0.5 benefits million), Analysts for CHAMPUS expect future employe retirees /CHAMPVA rsentirely, with these (0.1 percent This suggests chose to thatparticipate. only 114 thousand, or 21 percent of all disability beneficiaries in facto Repor rs.t of Some the employe Board of rs Trmay usteeschoose of theto Fed enroll eral thei Hospi r tal employees Insurance in the Trust public Fundplan (Washin rathe gt ron than , DC: Individuals benefits while to record unde others r 65 significant have andnothose plans liabilities with to change highe on rtheir their family balance existing incomes sheets, plans. werthereby e more inc likely reasing to the million), Medicaid (0.03 million), and Medicare (0.04 million) as their primary this •age Medicare group, were provides not covered a wide range by Medicare of health in benefits 1989. to the elderly. However, M H ed ealth icare. Car In e addition, Financing some Administ worke rar tion, s may 1be 990). only part-time and may not be eligible for their amount of debt on the balance sheet compared to equity, a commonly watched Thi have source rd,reti companies of reecoverage health can cove before retain rage enactment t( he table promise 2). would While to pay 43 alsopercent the switch full cost of to all either ofindividuals medical employment cove ove rage r based age Some Most companies this companies programcurrently have is facing decided use a difficult pay-as-you-go to use afinancial defined financing situation. contribution (paying According approach for retiree to in thewhich health a care U.S. Department of Health and Human Services, Social Security Administration, Social Security employer's plan. Finally, workers aged 60 to 64 may choose to retire earlier because of the ratio. 3 • Conclusions benefits 40 throughout coverage reported • Health Companies out or that reti of the Care r current ement they new can Financing public had design earnings). and, health therefore plan. Administration, theircoverage This Individuals retiree , assume method health thatthe currently the continues of benefit program financing full risk covered plans into could of involves retirement, medical as by either have a group no inflation negative defined prefunding only health 28.5 specific Bulletin, amount Annual of Statistical money Supplement, is set aside 1989 that(Washington, may or may DC,not 1989). be sufficient to cover all availability of Medicare. associated with retiree health care liabilities. These companies may, however, rpe (that etiree plan rcent is, cash as contribution health setting of a dependent flow those costs. funds by over plans, 1997 Although would 65 aside and had defined to be keep such these pay insolvent dollar employment coverage. for plans retiree benefit by are 2003. health Th descri based e plans, probability be benefits dcoverage orbydefined the inan companies as the individual benefit long future). as plans. either asover the the CIncludes individuals whose primary activity during the week prior to the survey was working. introduce EBRI estim inc aters eased that cost the sharing present with value reti ofrees privatthrough e employ copaymen ers' liab tsi,litiedeductibles s for current , etc. Retiree individual health or the insurance head of benefits household are aare common currentlyprovision employed. of large 8 employers' p Prefunding dIncludes age roviding of 40individuals has savings may retirincrease, ee whose for health reti pri ree ma though, be rynefi health acti tsvi with ty increases expen duri the ng ses,long-anticipated the with the weekmoney income. prior tois the Over not and survey legally recently 60 was percent ea being rapproved maof r reti ked red those . • Endnotes Statement retiree health No. insurance 106 (FAS 106) obligations from the was Financial approximately Accounting $241 Standards billion in 1988. Board It is this individuals The •company Any change ovealso r 40in retains years plan of the design age investment who alterslive anrisk in employer's families if there with is obligation prefunding. incomesto greater employees. This type thanof for elncludes benefit • these Both packages, individuals expenses. private both who and Thse ese private public prima plans ry financing and ac include tivity public. duriESO ng of FAS retiree th Pe s w and 106 eekhealth has p 401 rior(k) brought tobenefits plans, the survey the with are was full likely cont loo financial ki ribu ng totio fo be n rs limited in the future as health care inflation continues to increase. work, keeping house, or going to school. Also includes those who were unable to work, and those plan $50,000 (FASB). Some amount design individuals annually FAS that , 106 also employers requires have called whose reti awill r companies primary medical ee be health required service source benefits to recognize to be of,nefit recognize coverage compared , benefit was under most inwith costs their common existing about and financial liabilities 15law when pestatements rcent is many as of they of coming impact of from these either benefits the employe to the forefront, r or employee, causing ormany both, private depending employers on the to plan's 1 It is not required that this liability be recognized in its entirety immediately on the balance sheet due those are who accrued. sewho primary live acin tivity families was somet with hing incomes not mention less ed than by the$1 su 0r,vey. 000. temployment he with • retiree the EBRI's adoption health 1991 based plans fall of may FAS policy were use 106. forum Medicare staThe rted examined General in as thetheir 1950s Accounting the primary and types 1960s. source of Office plan These of (GAO) design coverage plans estimated and present after the these provisions. reevaluate Demographic their plans trends and and to consider the history limiting of health or eliminating care costs in them. the United For those to some phase-in and amortization provisions. earned liabilities at $217 billion, and the liabilities expected to be incurred in the company enactment. funding withThis changes perhaps wouldemployers the include largest retired are obstacles making andfor other incalculating response nonworking to liabilities FASindividuals 106. and Some funding whose employers States who suggest do continue that continuing, providing if slower, benefits growth at somein level, spending there for arethe few funding 2 This should be based on current rates of return on high-quality, fixed-income investments in amounts The Cove In vehicles due future direct response rBall in age companies large employer by Corporation available, also current to part varies thishave sponsored to employees newly all the by of of kept substantial fi Muncie which radopted mtheir coverage at size , $175 have traditional Indiana and standard size billion, was significant industry. of , through discontinued the and plans for liabilities a Among health limitations. total but a former are of care and its those $402 capping employe employer. cost the retirees billion unce inflation, r-paid (or rtainties in receiving limiting) In 1988.4 many addition, retiree ofMore elderly's health care is inevitable. The combination could leave retirees and with maturities that match the amount and timing of the expected future benefit payments. medical inflation. companies health some recently, employer-provided workers cove GAO rage are considering may estimates fromchoose a past that benefits whether to employer as retire ofin1991, ,to because order 62 continue private pe to rcent they reduce to employers could had provide the wo now r present ked a had receive full inaccrued value fi retiree rms health of with retiree health the coverage more health medical paying plan more. for persons This increases hired after theJanua needry for 1, individuals 1990, and has to instituted find ways ato n employee- 3 As a result, this change in the debt-equity ratio may affect the covenants on current or future debt, under Medicare. benefit liabilities or of to $296 make billion a limited , withcontribution $93 billion to owed this for benefit. currentSeveral retireescompanies and $203 have billion The views expressed in this statement are solely those of the author and should not be attributed to the than 1finance company's ,000 employees, retiree future health and health 7care 6 percent benefit in the had obligation. future. worked This This in prospect firis msoften with is likely done 100 oto by r mo force limiting re pay-all Medicareprogram providesto fund a wideretiree range medical of healthcosbenefits ts for new to the employees. elderly. However, Ball hopes this to resulting in higher interest rates or lower amounts of debt allowed. This secondary effect is difficult Employee dollar Benefit contributions Research Institute toward ,its office these rs, costs trusteein s, spon retirement, sors, or othe capping r staff. The theEmployee increase accrued continued by current reevaluation employees. of how this care is financed and who should pay. employees already Any change begun (table in to plan 3). make design Bychanges compa alters rison, to an current 63 employe perplan cent r's design. of obligation all nonfarm to employees. wage and sala While ry encourage program to estimate. isits facing employees a difficult to save financial for future situation medical and care according costs by to the allowing Health them Care the Benefit Research Institute is a nonprofit, nonpartisan, public policy researchorganization. in the amount contributed, or requiring a long service period before wo reduced A rkers proposal o are r changed employed (H.R. 1444) benefits inoffered firms may with byreduce Subcommittee 100 or retiree more health employees on Health liabiliti (P Chairman es iace , this ntini,action Stark 1989). may would Fifty- opportunity Financing Administration, to contribute after-tax the program dollars could into have a fund. negative The fund cash will flow beby invested 1997 and in 4 The difference between EBRI and the GAO number for current liabilities is due in part to different Other studies provide insight into the effects of FAS 106 through limited surveys. It four lowe be permit insolvent r pe employees employee rcent Socialby ofSecurity 2003. persons morale becomerecipients receiving and eligible reduce aged to health a receive fi 62 rm's cove years these ability rage or benefits. older, from to attspouses r their act and employer (who retainare employees. work agedin62 or group assumptions annuityabout contrac health ts care thatcost yield inflation. a fixed EBRI rate assumes of interest that ,health similar care to costguaranteed inflation will iscontinue expected to exceed that the genemedian ral inflation annual but that medical the difference cost for betw retirees een the will rates will increase gradually six times decline p investment Explaining older) rivate of indus Medicare the contracts. try,changes while beneficiaries, Employees 36 to employees percent must and work may children cont foralso ribute public of beMedicare at costly employers. least fo 2rbeneficiaries percent theBy employe compariso of pay r.to in n buy , order 75 to over the next 25 years, converging at 3.5 percent in the year 2013. GAO assumes that health care cost percent coverage after adoption of under all nonfa ofthe FAS rmMedicare wage 106 (Hewitt and program. salary Associates, wo Inrkers addition, 1990); are in the pretax prbill ivate earnings would industprovide rywill , and decline Medicare on participate, and investment earnings may accrue tax free. There is a debate among 12 32 7 13 11 l0 14 4 6 59