This morning, I attended a local gathering of approximately 45 retired IBMers at Founders Hall. As previously described, IBM has made arrangements with ExtendHealth to act as a broker to provide advice and enrollment for retirees with regard to Medigap, Medicare Advantage, Rx, Dental, and Vision insurance programs. The choices are complex and the consensus of the group was to become proactive in determining what is best for each of us. I certainly agree. One participant and former colleague, Charlie Pankenier, wrote an excellent summary of the background of American and IBM healthcare, and with Charlie’s permission, I share it here.
Health Benefits Background
by Charlie Pankenier
Why did companies like IBM provide health benefits in the first place?
During the severe labor shortages of WW II, wage controls limited companies’ ability to attract employees. So, many offered a limited medical care benefit to get around the controls. After the war, the popularity of the benefit grew, and coverage was expanded. The U.S. is an exception among advanced countries in providing medical care to 170 million people through employers.
How did insurance companies get involved?
Initially, many companies self-insured—that is, they administered the program and paid claims themselves. As medical benefits grew in popularity and scope, companies recognized they were assuming and managing increased risk in a field where they had little expertise. So, they turned to insurance firms and non-profit cooperatives (Blue Cross/Blue Shield, for example); these organizations were more experienced in insurance or medicine, and saw a business and growth opportunity.
And since then?
Over time, the cost of medical care has increased dramatically, so the costs of the benefit commitments made decades ago have become financially burdensome. The same is true of the expense of administering the program. As a result, in recent years companies have ended retiree medical benefits altogether, capped their contributions, shifted between insurance providers at frequent intervals, employed claims and pharmacy management firms to reduce costs, outsourced administration, etc. In general, retiree preferences have not been a high priority in these decisions.
In 25 words or less, where are we now?
IBM has taken the hundreds of millions it now pays insurance companies for medical benefits for 110,000 retirees and divided it across the eligible individuals, giving each a fixed “wallet” to spend through an insurance exchange for medical, prescription, dental, and vision care. The “menu” of insurance options selected and their costs can be more or less than those chosen under the former retiree offerings. This is consistent with the continuing shift from “defined benefit” to “defined contribution” in benefit programs generally, as more responsibility, risk, and (potentially) cost are shifted from employers to individuals. (And don’t be misled by “insurance exchanges”; none of this has anything to do with the Affordable Care Act). Instead of shopping among insurance providers itself, IBM has outsourced this activity to ExtendHealth, an insurance exchange with greater collective buying power; other companies (Walgreens, Time-Warner) have done the same. And, IBM has basically exited benefits administration; this burden also has largely been shifted to the individual retiree (with help from “licensed benefit counselors” at ExtendHealth), something especially evident in the protracted initial enrollment process. The implications for future years remain to be seen. Much more than 25 words, and over-simplified, but that’s a summary.