Exclusive: IBM Retirees Fear Health Benefit Cutbacks

October 22, 2000 (PLANSPONSOR.com) - In the midst of a national debate over healthcare concerns, a letter suggesting IBM might decrease retiree health care coverage has stirred up emotions among the already combative Big Blue retirees.

»   Full text of the letter, as obtained by PLANSPONSOR.com

»   In Depth article: Reading Between the Lines at IBM

J. Randall MacDonald, a senior vice president for human resources at IBM, writes in a letter sent to 108,000 retirees that the company will expand the number of health care coverage options available to retirees, while at the same time stating that beginning next year “all retirees will begin sharing in the cost of health care premiums for certain plans, beginning in 2001.”

This measure would largely apply to employees who retired before January 1, 1992, since  limits have already been imposed on those who retired since that date.

MacDonald writes in the letter dated October 2000, that IBM is acting because “health care costs have escalated faster than anyone expected.”

Conflicting Views

The letter is clearly warning of benefit cuts to come, says Rochester, Minnesota-based Janet Krueger, head of the IBM Employee Benefits Action Coalition. But, “without any detail about what will be included in the new choices, it is impossible to predict how drastic the cuts really are,” she says.

Glen Brandow, a spokesman for IBM, insists the letter is not a warning of future cutbacks in retiree health-care coverage. “The letter points out directly that our goal is to provide an expanded range of plans in response to rising health-care costs,” says Brandow. “We are responding to rising costs by offering a variety of options.”

The letter states that “many (other) large employers no longer share in the cost of retiree health care, and most of our technology competitors don’t provide retiree health coverage at all. IBM provides health-care coverage to its retirees and helps share in the cost of the coverage.”

Cost Pressures

Healthcare costs have risen notably over the past several years, driven by the needs of an aging population, higher drug costs and litigation risks to providers.  To date many employers have elected to absorb benefit price increases, pressured by the need to attract and retain workers in a competitive job market.  While workers remain in short demand, employers may be increasingly unable – or unwilling – to continue shielding workers and retirees from that reality.

Earlier this year, critical media coverage and outraged IBM employees and retirees forced the company to allow 35,000 additional employees to remain in its traditional defined benefit plan instead of its much-criticized cash balance scheme.