Wednesday, July 16, 2008

Americans will be on their own for retiree health care coverage

That's my prediction, anyways. Americans won't be able to count on retiree health care benefits from either Medicare or private company insurance. Take a look at what General Motors just did.

But GM's announcement Tuesday that it would cease medical coverage for its salaried retirees age 65 and above signals that a new era of ever-shrinking benefits has arrived. Beginning in January, even former employees who are already in retirement will lose their benefits, which most of the company's retirees use to supplement gaps in their traditional Medicare coverage. The auto maker will boost monthly pension payouts to help offset the cuts. The company's unionized workers aren't affected by the cut to retiree health benefits.
And here's the advice from the retirement experts:

At this point, employees and retirees "have to feel lucky if they still have retiree [health-care] benefits, and have to start planning for when they won't," says Rick McGill, head of retiree medical consulting for employee-benefits firm Hewitt Associates. He says such benefits are "a dying breed."

Retirement-benefit experts have for some time been recommending that all workers -- even those close to retiring and who've "earned" full retiree benefits -- should assume that those benefits will likely be eliminated, either before or during their retirement, and start planning and saving for it.

Medicare won't be there either

I don't think Medicare will be there to pick up the slack for retirees who lose company sponsored health plans. It's an unsustainable program. Kotlikoff wrote an entire book on the problems. According to Fidelity Investments, which was referenced in the Journal article, "a 65-year-old couple's out-of-pocket health-care costs could reach $225,000 in their remaining years". Sadly, that money is going to have to come from the retiree him- or herself, not from the government. There will no longer be government sponsored health care for the elderly. It's a bum deal, for sure, but we'd better start planning for it.

State and city workers will fare no better than corporate workers

State and municipal workers counting on retiree health care benefits won't make out any better. These old Fortune articles give some good background. Let's not kid ourselves, taxpayers aren't going to fund public sector retiree benefits. They're going to be cut.

Again, this is all very sad, but unfortunately, it's reality. I hope I'm wrong about this, but this doesn't look like a problem that we can grow our way out of.