WASHINGTON - Big business will not get much help with early retiree health care obligations from either the Senate or House health care reform bills, but relief may come from another source.
Companies with surplus pension assets may be able to use those assets to fund retiree health benefits under an amendment to the General Agreement on Tariffs and Trade bill.
The Senate health reform bill, introduced by Majority Leader George Mitchell, D-Maine, would allow companies to purchase benefits for early retirees through a community rated pool. The pool rates would hinge on the collective liabilities of the pool's members, although adjustments would include age and demographics. Companies would receive no subsidies, a Democratic leadership aide said.
In the House, the proposal of Majority Leader Richard Gephardt, D-Mo., would allow employers to offer early retirees benefits through Medicare Part C, a new federal safety net insurance program.
An outline describing the Gephardt proposal says some government financial assistance would be provided to subsidize the cost of health care benefits employers offer to current retired employees who retired before 65. Congressional staffers said the details were still being worked out.
The amendment to the GATT bill, passed in concert with the bill by the Senate Finance Committee last week, would extend Internal Revenue Code Section 420, which allows companies to use a percentage of surplus pension assets to fund current retiree health benefits for five years.
Because companies using Section 420 would lose the tax deduction on the assets used to pay for health benefits, the provision is expected to raise $414 million over five years.
The GATT amendment has certain restrictions, including vesting all participants, and allowing only one asset transfer per year. Section 420 was passed four years ago and was intended to be used for a short period so employers could fund retiree health expenses without weakening their pension systems.
Some experts said the new amendment would be a short-term fix to the long-term problem of providing health care benefits for retirees.
"This is not a fix to the problem, but it's certainly a useful provision," said John Woyke, principal at Towers Perrin, Valhalla, N.Y. "In the long term, they should allow ways for companies to pre-fund these liabilities."
Scott J. Macey, executive vice president and general counsel for Actuarial Sciences Associates Inc., Somerset, N.J., said he knows of 15 to 20 large companies using the Section 420 provision; the new amendment may provide an opportunity to other companies.
"It's a win, win, win situation, but only for a limited number of companies," he said.
Jack Stair, senior consultant at E.I. du Pont de Nemours & Co., said that from 1990 to 1993 his company used $900 million in surplus pension assets to pay for retiree health care costs under Section 420.
"We would definitely like to see this (Section 420) extended," Mr. Stair said, adding retiree health liabilities account for about 75% of the company's total health care costs. "It has helped us in the past and will be helpful to us in the future."
Still, most agree retiree health policies will be dictated mostly by what Congress legislates.
And although retiree health has not been at the forefront of the health care debate, its constituency is considerable.
According to the U.S. Census Current Population Survey for March 1993, there are about 21.2 million people between 55 and 64 years old; 8 million do not work, while 2.6 million work part time and 10.6 million work full time.
Of the 8 million that don't work, only 35% have health coverage through an employer or a spouse's employer.
According to the Foster Higgins National Survey of Employer-Sponsored Health Plans, 1993 medical plan costs averaged $2,735 per retiree. For employers who could separate costs, the average cost was $5,216 per retiree younger than 65, and $1,786 per retiree 65 and older.
Overall, the Gephardt bill would require employers with more than 100 employees to offer health insurance and pay 80% of the premiums for active employees. This requirement would start on Jan. 1, 1997, while employers with 100 or fewer employees would face this requirement on Jan. 1, 1999.
Under the Mitchell proposal, an employer mandate would be triggered in 2002 only in states where 95% of the population does not have health insurance and Congress has not found some other way to reach that goal. If the mandate is triggered, employers would pay 50% of the premium. Employers with less than 25 employees would be exempt from the mandate.
It would also give Medicare participants new drug benefit options: a fee-for-service plan; a prescription benefits management option; and an HMO option.
The Foster Higgins survey reported that drug costs account for about 10% of medical plan expenses for both large and small employers in 1993.
But Mark Ugoretz, president of the ERISA Industry Committee, Washington, said the systems in both bills do not provide for cost containment and hurt not only big business, but also individuals.
"Business has been forced into the position of opposing these bills when in fact they should have been the major allies of reform," Mr. Ugoretz said. "If there is no cost containment, then it's no reform."
Both bills are expected to begin debate this week, but right now, both Messrs. Gephardt and Mitchell do not have the support to pass either bill, experts say.
James Klein, executive director of the Association of Private Pension and Welfare Plans, Washington, said retiree health may be one of the carrots used to get support.
"It might get used on the floor of the Senate in an attempt to get more votes, and then potentially dropped in conference because it's too expensive to do," Mr. Klein said. Retiree health "could be the point of support (for the entire bill) for some senators who care about" retiree health.