Is Obamacare Giving Retirees the Boot?

Imagine this scenario if you will. You've worked for decades as a hardware engineer for IBM (NYSE: IBM  ) . Within the last couple of years, you reached the retirement age of 65 and you've been living off your pension and receiving health insurance through your former employer. It may not have been an easy job, but the company has owned up to its promise to take care of you and things are going well.

Now imagine that you get a letter from IBM in the mail informing you that, because of the passing of the Patient Protection and Affordable Care Act and the complexities it's brought to the retiree health insurance market, your retiree coverage is being dropped. Also with that letter comes a check from IBM for you to use to seek out your own individual insurance on the state-run individual health exchanges.

Sound a little harsh? You worked for IBM for decades and now they'd rather pay you off than deal with your health insurance! It certainly did to me, but that was before I dug a bit further.

Source: TaxFix.co.uk, Flickr.

Kicking retirees to the curb?
While the above story is almost entirely fictitious, what isn't is the fact that many businesses are looking hard at their retiree benefits program and some are choosing to drop coverage on their retirees in order to cut future costs which are tied to the PPACA, also known as Obamacare. IBM is one such company that made this decision, notifying its retirees last week that it would send its Medicare-eligible retirees an annual payment that they could then use to shop for individual health insurance on state-run health exchanges. According to an IBM spokesperson, the move will affect about 110,000 retirees and is being necessitated because costs for these retirees are forecast to triple between now and 2020. 

IBM isn't alone, though. This weekend, we also heard that Time Warner (NYSE: TWX  ) plans to do the same thing with its retirees, which a spokesperson for the company confirmed on Sunday. Like IBM, Time Warner is facing rising costs for Medicare-eligible retirees and would rather give them money to seek out their own individual plan than keep them on the company's current retiree-benefits plan.

According to a research study by the Kaiser Family Foundation, roughly 29% of businesses with 5,000 or more employees are considering a change to their retiree health benefits platform. If you take a recent survey of 540 businesses from employee benefits consulting firm Aon Hewitt into question, you'll see an even broader outlook, which points to 60% of all businesses either implementing or considering the implementation of retiree benefit changes similar to what we saw from IBM and Time Warner.

But here's the shocker...
But, here's the crazy thing... this is great news for all parties involved. Sure, being kicked to the curb as a retiree doesn't exactly inspire any moral support after the years or decades or work you likely put into that company, but for both parties it's going to work out for the best.

Let's look at this from a retirees' point of view. Under the current system they receive a very rigid plan, or a small handful of plans, to choose from with the company covering their health plan costs. Under the new system, businesses like IBM will prepay their retirees a lump sum of money that they can use to personalize their plan to better suit their needs. Moreover, the health care plans under Obamacare are considerably beefier than they have been in the past, offering more comprehensive coverage. With better transparency and potentially equal or more comprehensive coverage, retirees may actually wind up better off than where they are now.

From the standpoint of the businesses involved this move is a no-brainer. With health costs for retirees rising, jettisoning retirees onto the individual health exchanges could free up millions for some of the nation's largest employers which, in turn, can be used for job creation, research and development, or even a bigger dividend check to investors.

Another underlying winner here would be Medicare Advantage providers like Humana (NYSE: HUM  ) , UnitedHealth Group (NYSE: UNH  ) , and Universal American (NYSE: UAM  ) . Medicare Advantage plans are supplemental health insurance plans that seniors buy to fill the gap in insurance for what Medicare doesn't cover. With many retirees now being displaced from their company-run plans, the aforementioned companies above -- which receive about two-thirds, one-quarter, and three-quarters of their revenue, respectively, from Medicare Advantage plans -- could be big beneficiaries.

Sometimes the effects of Obamacare on our nation's workforce, or retirees in this case, isn't subtle, but this is one scenario where it appears it's going to work out well for retirees, for corporate America, and for a select group of insurers.

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Editor's Note: The attribution for the image in this article was incorrect in a previous version. The Fool regrets the error.


Read/Post Comments (15) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 09, 2013, at 6:48 PM, KenNC wrote:

    The primary problem with this author's approach is the difference in quality, coverage and costs of the existing retirement health plan and the plans that will be available in the exchanges. Right now the retiree understands the costs and coverage of the IBM health plan.

    I suggest that the plans available in the exchanges will be either far lower in quality or far higher in price, or both, when compared to what the retiree has now.

    Yes, this will be good for the healthcare providers. But this will be accomplished by lowering the costs for IBM but dramatically increasing the costs paid by the retiree.

  • Report this Comment On September 09, 2013, at 7:46 PM, gulfcoastrebel wrote:

    Is Motley Fool biased against "Obamacare"?

  • Report this Comment On September 09, 2013, at 7:47 PM, rsudy84 wrote:

    I agree with KenNC. It may be good for IBM and Time Warner and it certainly going to be good for insurance exchanges, but this almost certainly is not going to a benefit to the retiree. They will find that whatever dollar amount IBM or Time Warner are giving them will not provide them with the same coverage that they were receiving previously. It is why IBM and Time Warner are going down this route in the first place. ObamaCare is a joke and will continue to hit the little guy the hardest because it does nothing to address the real problems in health care.

  • Report this Comment On September 09, 2013, at 8:10 PM, Ibmer35 wrote:

    First of all the medicare eliguble retirees at IBM, I am one of them, will not be on the ACA exchanges. We are all on Medicare and as such are not eligible. The IBM program is a private health care exchange. In order to get the subsidy from IBM one needs to buy an individual policy, no longer a group policy, through th extend health exchange only. Not from any other source, either AARP or an ACA exchange. I wish the writer of this article spent some time doing their journalistic homework. This information on the IBM plan is well known.

  • Report this Comment On September 09, 2013, at 9:03 PM, doco177 wrote:

    Google.... "Obamacare Flowchart" at Intellectual Takeout .... to see a visual representation of the corrupt mess this really is

    Congress,Muslims, Amish, Native Americans are exempt from mandate and penalties under Obamacare that the rest of us have to pay.

    1. Millions are losing the insurance Obama promised they could keep. Because ObamaCare forces employers to offer expensive Cadillac plans but also offers the option of paying a fine for not providing health insurance that can be cheaper than providing it, between seven and twenty million Americans are likely to lose their health insurance coverage according to the Congressional Budget Office. The original estimate was closer to four million.

    2. The cost of healthcare premiums is about to further skyrocket. Premium costs have already exploded, but that is a slow-motion explosion. In the near future, we could see costs double or worse. Naturally, these costs will hit an already burdened middle class hardest.

    3. Lost jobs. Lost jobs.

    The Federal Reserve's March beige book on economic activity noted that businesses "cited the unknown effects of the Affordable Care Act as reasons for planned layoffs and reluctance to hire more staff."

    Consulting firm Adecco found that half of the small businesses it surveyed in January either plan to cut their workforce, not hire new workers, or shift to part-time or temporary help because of ObamaCare.

    4. Doctor shortages that will mean rationing: The healthcare industry is already a bureaucratic quagmire. ObamaCare is about to add steroids. As the profession becomes tyrannized by government, the talented people currently practicing medicine plan to get out sooner than expected. Who knows how many will choose not to get in. Doctor shortages are what lead to the nightmare known as rationed care.

    5. Somewhere around $800 billion in tax increases will hit America's middle class. This added burden will not only further oppress a middle class already reeling from a drop in wages over the last few years, but could damage the overall economy.

    6. Inflation, the cruelest tax on the poor. When businesses get socked with added costs brought about by higher taxes and burdensome government mandates, they pass those cost along to the consumer in the form of higher prices.

    7. Added bureaucracy. Even those Obama lapdogs over at the Washington Post's Wonk Blog are admitting that applying for health care is about to get more burdensome than the byzantine paperwork involved in buying a home.

    8. To cut costs or to avoid having to provide insurance, workers on the economic margins are already losing hours, which means a lower paycheck. There are a million sad stories in ObamaVille; here are just a few of them.

    9. ObamaCare is projected to add $6.2 TRILLION to a deficit the GAO has already declared "unsustainable." That's "trillion" with a "t".

    10. More taxes than currently estimated are likely to hit because of situations like this one.

    Three years ago, Obama, Democrats, and his media lied to us about cutting the cost of health care, being able to keep our insurance, and not taxing the middle class. Today, those lies and what ObamaCare is and will do to the working and middle class are the biggest untold story in America.

    The govt becoming more involved in health care is the reason the costs have increased. So Govt creates a crisis, then provides a solution that comes at the expense of liberty and freedom, costs trillions, and by most accounts won't solve the problem but in fact make it far worse.Corruption, incompetence, disregard of the Constitution, and lying are integral to the way that this country is being run.

    REFUSE and Repeal Obamacare...If only a mere 20% of the over 300 million population of the USA boycott Obamacare the government would be overwhelmed to even think they could penalize or mandate every citizen that refused to participate in the most corrupt and unlawful ways which it was passed that circumvented the constitution of the United States.

  • Report this Comment On September 09, 2013, at 9:05 PM, eknowle wrote:

    I wonder what about those who are not medicare eligible. While I don't work for IBM, I am not and won't be medicare eligible. So, what would happen to me if I lost my employer-provided health insurance in retirement??

  • Report this Comment On September 10, 2013, at 12:24 AM, ewmcdill wrote:

    What the article does not take into consideration is what my company and likely these other companies are doing. They give you a lump sum equivalent to what they are paying today. That sum will stay the same for the rest of your life. Sure it covers you comparable health plan this year but when insurance goes up next year the lump sum will no longer be enough to purchase your insurance.

  • Report this Comment On September 10, 2013, at 12:38 AM, cmxdx wrote:

    We've seen from recent scandals with schools using webcams to spy on students, and the NSA hacking into our phones, that we shouldn't trust Obamacare navigators. Who are these people? Eager SNL worker bees looking to steal your honey pot of private info? They're gonna be working with Rite Aid as well. Boycott Rite Aid

  • Report this Comment On September 10, 2013, at 1:04 PM, pondee619 wrote:

    " Also with that letter comes a check from IBM for you to use to seek out your own individual insurance on the state-run individual health exchanges."

    What size check compared to what cost on the State run exchanges. It's about time that eople realized that retiree plans are not "promises' made by employers out of the goodness of their hearts. These plans are deferred compensation bargained and paid for through lower wages/salaries paid through the employees working years. Emloyees at company "A" or the government considered these plans in formulating their demands at the bargaining table. Had these plans not been offer, the employees would surely demanded, and gotten, more in their current salaries to offset this loss, and to pay for thier own "plans". Current retirees at IBM paid for their retirement health plans and pensions through taking less in current pay. The contract between employer and employee that includes future payments must not be discarded. The employer has received the benefit in paying less in current wages for creating these retirement plans, the employees can not be allowed to have to pay twice.

  • Report this Comment On September 10, 2013, at 4:06 PM, BMFPitt wrote:

    "But, here's the crazy thing... this is great news for all parties involved."

    Except for taxpayers.

  • Report this Comment On September 10, 2013, at 4:20 PM, damilkman wrote:

    Just jumping on the bandwagon. From a math perspective the author said it was good for buisnesses to give retirees X because they perceive their costs in the future will be 3X. It is great for the company because the just saved 2X. It is great for the exchanges because they just made 2X of money. Bad for the retiree because they have to come up with 2X more money.

  • Report this Comment On September 10, 2013, at 10:40 PM, arieyani wrote:

    The changes IBM is making is all well and good IF you live in the USA. I am a retiree since 1992 and have lived outside the US since 1993.

    I am 66 years old, with some health issues, but managed with my insurance. However, although I am Medicare eligible, I can't use it. And I'm not registered in any state to get on their exchanges, which most likely will not cover outside the US.

    IBM can give me lots of cash, but other countries don't accept pre-existing conditions and at my age, it is far far far cost prohibitive.

    So, what is the good news you would perhaps tell me. By the way, I vote for every National election out of New York, but no residence. It was my last know address in the US. So, I vote. I pay taxes. I get Social Security and a very small pension. And the good news is?

  • Report this Comment On September 11, 2013, at 3:29 PM, arntYOUsmart2 wrote:

    EXCEPT, this started WAY before Obamacare; Xerox did this in 2009 which started the trend irrespective of the new law. In 1988 80% of employers offered health care, now? 28%......Don't know who doco1 is but let's just say uninformed. All I had to do was read that muslims are exempt which of course is NOT true, in addition to the numerous assertions he makes. READ this law yourself; we are all capable if we aren't too lazy.

  • Report this Comment On September 11, 2013, at 3:35 PM, arntYOUsmart2 wrote:

    one more thing, arieyani,

    Obamacare description of the rules governing Non-Residents:

    CHAPTER 48—MAINTENANCE OF MINIMUM ESSENTIAL COVERAGE;

    and Title 26 of IRS code.

    or go to the federal exchange.

  • Report this Comment On September 11, 2013, at 10:45 PM, arieyani wrote:

    Thank you, arntYOUsmart2. I appreciate the reference you provided. I really do. You meant well and have opened up my eyes. Having read the above reference I have established the following:

    1. I'm a lot dumber than I give myself credit for. I have no clue how that all pertained to my earlier post of getting coverage overseas..

    2. It did not say how an exchange HAS to cover me outside the United States (btw I live in Indonesia) and I think I don't have to pay a penalty if I don't or can't sign up.

    3. Even my current coverage covers all the aspirin I needed to take for the headache I got after reading all that 'stuff' (keeping it clean).

    4. I now understand why even the law makers have no clue about the new healthcare law.

    I'd like to state that I don't have a fight with anyone on this matter. I am just seeking answers to how I will live a prolonged life with no medical health coverage in my future. Looking for solutions, not finger pointing or blame. I will attempt to re-read the Chapter to see if the second time is better. (after the pain from the first reading goes away).

    I may seem to make light of this but it's the only way to get through it with my sanity. It's very a very serious part of our citizenship. I'm sure I'm not the only person in this situation.

    Again. Sincerely arntYOUsmart2...I do appreciate your assistance with the Chapter 48 thing. I really do.

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