WSJ: “3M to Change Health Options for Workers”
The Wall Street Journal reports this morning that manufacturer 3M “informed retirees and workers it will stop offering a group health insurance plan to retirees not old enough for Medicare by 2015, citing the federal health overhaul as a factor.” Specifically, Medicare-eligible retirees will be converted to a health reimbursement arrangement (HRA) in 2013, and retirees not yet eligible for Medicare will be converted into an HRA beginning in 2015, once the insurance Exchanges and subsidies are scheduled to come online in 2014. The memo to employees notes that “health care reform has made it more difficult for employers like 3M to provide a plan that will remain competitive.”
3M’s decision to eliminate coverage for Medicare-eligibles beginning in 2013 exactly coincides with a provision in the law scheduled to take effect that year, which eliminates the tax deductibility of a federal subsidy provided to companies that cover their retirees’ prescription drug expenses. Earlier this year 3M took a $90 million write-down as a result of this provision – which, as predicted, is leading companies to modify their coverage choices. In August, the Medicare actuaries predicted that nearly 6 million retirees would lose their current employer-sponsored drug coverage as a result of this provision.
This type of change – converting a defined-benefit plan into a defined-contribution model – has been advocated by some in the policy community, as it may give retirees more flexibility in their coverage options. However, to the extent that employers place more of their workers on insurance Exchanges to receive federal subsidies, such plans would obviously increase the federal deficit – in addition to breaking the President’s promise that those who like their current coverage will be able to keep it.
It will also be interesting in the coming days to see the responses from Democrats regarding this development, particularly given what a Journal editorial this morning characterized as “political intimidation” against McDonald’s when a leaked internal memo showed the company apparently wavering on whether to continue offering coverage to their employees. Sen. Jay Rockefeller sent a letter late last week seeking detailed information from McDonald’s insurer “in order to understand the costs and benefits of the insurance products you are selling to McDonald’s employees.”
Political intimidation or not, companies have been given strong economic incentives – higher taxes for those employers offering retiree drug coverage, and a federal government willing to subsidize insurance for all low-income employees – to modify or drop their coverage entirely. In the long run, those incentives will be extremely difficult for successful firms to ignore, despite the short term political hue and cry from elected officials.