AK Steel Requires AEIF Retirees to Share Health Care Costs

June 1, 2006 (PLANSPONSOR.com) - The decision by AK Steel to require about 4,600 retirees to bear some of price of their health care coverage is an attempt to ease costs and make the company more competitive.

According to a company news release, the move – effective October 1, 2006 – is meant to bring the health care plans of retirees of its largest plant in line with other AK Steel retirees, who are already required to share the cost of health coverage.

The nearly five thousand retirees were hourly and salaried members of the Armco Employees Independent Federation (AEIF), the union at AK Steel’s Middletown (OH) Works. These retirees currently do not share in the cost of these benefits apart from co-pays for office visits and prescription drugs.

About 70% of its retirees companywide already share in the cost of their health care benefits, including non-union salaried retirees who have done so since 1996. AK Steel’s AEIF retirees and its Butler (PA) Works’ retirees are the only remaining retirees that do not share the cost burden of coverage, the company said.

AK Steel said that its retiree health care costs have risen nearly 50% since 1999, when the now-expired AEIF contract was ratified. According to the news release, t he company spent more than $230 million for health care benefits for employees, retirees and their dependents in 2005, which the company attributes to increases in prescription drug costs.

“Most of our competitors have lowered their employment and retirement costs with the aid of bankruptcy laws – dumping pensions onto the federal government and abandoning retiree health care benefits,” said James Wainscott, chairman, president and CEO of AK Steel, in the announcement.

The decision to share health care with retirees is the result of AK Steel’s negotiations with AEIF that began in November 2005.

The changes will include:

  • monthly health care premiums
  • elimination of vision, dental and Medicare subsidy benefits
  • reduced life insurance coverage.

Increased Payments

Retirees under age 65 will pay 10% of the monthly health care premium until 2008, and thereafter will pay all increases in the monthly premium. According to the release, the monthly premium amount is based on the actual cost the company incurs to provide retiree health care benefits. Medicare-eligible retirees will pay 50% of the monthly health care premium until 2008, and thereafter will pay all increases in the monthly premium.

Effective January 1, 2007, AK Steel said in the news release that it will offer a modified health care plan for current AEIF retirees which provides both flexibility and cost-containment features for retirees under age 65, as well as those age 65 and older and eligible for Medicare.

Medicare-eligible retirees will have an option of a traditional plan or a new Medicare Advantage Preferred Provider Organization (MA-PPO). With these modified plans, retirees will be responsible for deductibles and co-pays for covered services.