Byline: Gail MarksJarvis
ST. PAUL, Minn. _ Ed Stish is not living the carefree life he envisioned when he retired from a taconite mine in Keewatin, Minn., three years ago. He has no time for lounging in a La-Z-Boy, golfing or fishing for pleasure.
Instead, Stish rises early and sets about growing vegetables, trapping beaver for pelts and harvesting wild rice on a lake near his home in Bovey. His wife, Sue, sells the bounty at farmers' markets four days a week.
They do this to survive. Just a few months after he retired at age 50 from National Steel Corp., his employer of 30 years went bankrupt, taking with it longtime promises to provide a livable pension and cheap health insurance for life.
Even though the U.S. Pension Benefit Guaranty Corp. stepped in to protect workers' pensions, Stish's monthly payment was cut almost in half to $1,350. And the buyer of the mine, U.S. Steel, never made good on the old promise to provide retiree health insurance.
That left Stish in the same predicament as countless retirees caught in an unaffordable health insurance trap they never expected. Company-paid health insurance for retirees is becoming extinct as companies try to slash costs and increase profits.
While federal law requires companies to deliver the pensions they promised workers, no such legal obligation exists for health insurance.
Eleven years ago, 46 percent of large U.S. companies helped retirees with health insurance, but now just 28 percent continue to do so, says researcher Paul Fronstin of the Employee Benefits Research Institute. Among all U.S. companies, 11 percent provide retirees with health insurance.
Fronstin says current workers of any age should not expect the benefit when they retire unless they work in some government jobs or are protected by a union contract guaranteeing coverage. His warning allows people who still have jobs to plan for their future, but retirees don't have the luxury of time or a paycheck.
In the past few years, retirees like Stish were taken by surprise when an employer went broke or was acquired by another company that didn't want to continue their health benefits. Others have lost insurance because former employers wanted to avoid spiraling health insurance costs, or they could bolster corporate profits quickly through an accounting maneuver that can turn disbanded insurance liabilities into instant income.
Last year, 10 percent of companies that gave retirees health benefits eliminated them completely and 71 percent made retirees pay a greater portion of health coverage, according to research by the Kaiser Foundation and Hewitt Associates.
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'There is no way people could have anticipated the rate of inflation in health care, and no way for a person to plan if the trend continues,' says Michael Stein, a Boulder, Colo., financial planner and author of 'The Prosperous Retirement.' 'It's a societal crunch, and society will have to make changes.'
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Cutting retiree benefits is considered the path of least resistance _ considerably easier than upsetting existing workers with benefit cuts or disappointing shareholders with lackluster profits. The special accounting attached to cuts in health benefits works almost magically to prop up corporate profits, even if a company has not sold more goods or services.
'Companies attack the segment of their stakeholders that have no defense,' says Jim Norby of the National Retirees Legislative Network.
The network has asked Congress to pass laws that would mandate employers to maintain their commitments to retirees, but Norby says there's not much interest.
Fronstin says policy makers could also address the erosion of retiree health benefits by expanding Medicare or other programs covering such expenses, changing tax treatment for health expenses and educating people that they must save for retirement health insurance.
Meanwhile, as companies slash benefits, retirees are left in a bind. With poor job prospects and insurance costs high for older people, many retirees can't afford thousands of dollars in unexpected expenses.
Typically, when workers consider retirement, they check on their company benefits and add up monthly living expenses ranging from heat to property taxes. If pensions, savings and Social Security look like they will cover all the costs, they may decide it's safe to retire.
But that can be a serious mistake if unanticipated health insurance costs pop up after retirement. Early retirees, those younger than 65, may have to spend $1,000 a month for insurance. People eligible for the federal Medicare program may have to spend about $250 a month on supplemental insurance because Medicare only covers about half of the costs.
An individual who retired in 2003 with employer health benefits will need between $37,000 and $750,000 in savings to pay for his supplement to Medicare, according to the Employee Benefits Research Institute. An individual without any help from an employer will need $47,000 to about $1.5 million.
Stish never considered this before he retired. Throughout his years as a mechanic in the taconite mine, he believed the company would give him cheap lifetime insurance if he just completed 30 years of work.
'Instead, I was just cast in the wind,' he says.
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To keep costs down, Stish insured his wife and himself but not a healthy daughter still living at home.
He figured he couldn't skip insurance because he and his wife have high blood pressure. Plus, he retired at 50 after his doctor warned him: 'You've got to quit, or you are going to die.'
But he can't afford much insurance. His policy will cover an expensive emergency, but each year he must pay the first $5,000 of the couple's expenses for doctors, hospitals and medicine. Besides that, he pays $750 every three months for health insurance.
That takes a big chunk out of his $1,350 monthly pension. Stish worries what will happen if his body no longer allows him to work and health insurance costs keep climbing 15 percent a year.
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That threat also troubles Tom Bedford, a retired IBM engineer in Arden Hills, Minn.
In 1991, Bedford retired at age 61 from IBM specifically because he wanted a benefit that was scheduled to disappear if he waited another year _ the promise of free health insurance for life.
Despite that understanding, Bedford recently started picking up health care costs. At age 74, he must pay $100 a month for health insurance and the first $2,000 in medical expenses each year that he and his wife incur.
He can afford that now, but says 'it would be terrible if the insurance rose to $300 or $400.' Since both his parents and his wife's parents lived to their mid-90s, he knows he could far outlive his ability to work or pay the likely increases in insurance.
'I guess it's just a matter of time before the bomb is going to drop,' Bedford says.
He says he didn't consider this possibility the day he retired because 'IBM had such a good health plan you never had to worry.'
IBM says it still offers a good health plan. 'If you look at our competitors, you'll see that IBM continues to offer some of the most generous retiree medical subsidies in the industry,' says spokeswoman Kendra Collins.
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Rodney Peterson also didn't think he'd have a health care worry when he retired 21 years ago from Northwestern Bell in Duluth, Minn. His employer guaranteed coverage for life. But now he's paying about $800 a year, and at 81, he can't work for the extra money.
That's part of his problem. Two years ago, he moved from his home in Duluth to an apartment in Rice Lake, Wis., because he could no longer keep up a house and routine paperwork. He needed to be near a daughter in Wisconsin who could help him.
After his move, Qwest _ which had acquired the former Northwestern Bell _ told him he'd have to pay more for insurance in Wisconsin than he paid in Minnesota. With the extra financial burden, he now wonders how he will afford to fix the brakes on his car.
'I feel like we've been let down,' Peterson says.
Peterson is not the only one feeling that way. Many of Qwest's employees were absorbed from companies Qwest purchased, and their cultures were different, says Dick Caldwell of Arden Hills, Minn., a former speechwriter for Qwest executives.
When people worked for Northwestern Bell, they agreed to work for lower pay than elsewhere, but they did it because the culture promised retirement security _ including lifetime health insurance, says Caldwell.
'They should act honorably and continue paying, rather than letting a threat hang over retirees,' he says of Qwest.
He adds that the extra health costs retirees are now bearing is a slap in the face to those who rallied to Qwest's defense about a year ago.
Qwest wanted to offer long-distance phone service to customers, and the company had to get approval from state regulators. Retirees were called upon to urge regulators to help. They made the plea for Qwest so the company could keep paying pensions and health benefits, Caldwell says.
Just a short time afterward, retirees received what Tom Lee of Hopkins, Minn., calls 'our horrifying Halloween letter.' Mailed in October, the letter from Qwest told some retirees that they would have to start paying 20 percent of their health insurance costs.
Qwest declined an interview for this story, but in a written statement said, 'In an age of ever-increasing benefit costs and an extremely competitive marketplace environment, it has become necessary for Qwest _ like other major U.S. companies including AT&T, BellSouth and SBC _ to modify its benefit plans for retired employees.''
Under an accounting rule, companies are required to book their expenses for future retiree benefits years before the employees leave the company. Then, if the benefits are changed and will cost a company less in the future than earlier anticipated, the company can log the savings as income. The procedure is not one companies publicize, and IBM declined to discuss it.
Most companies are free to cut benefits at will as long as their documents say they might do it, says Minneapolis attorney John Nichols.
But most people planning for retirement don't hunt through the legalese and consequently are taken by surprise.
'I was dumb enough that I didn't read everything,' Lee says. Instead, on the day he retired at age 58, 'I jumped up in the air and clicked my heels.'
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(c) 2004, Saint Paul Pioneer Press (St. Paul, Minn.).
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