What to do about retiree health care.

• Author: Nadel, Alan A.
• Position: Includes related article - Chairman's Agenda: Managing Health Care Costs

The time to act is now because, for most employers, the liability grows every day if no action is taken.

Retiree health care is one of the biggest financial challenges currently facing Corporate America. This problem is of concern to the private sector as well as the federal government because of the size and rapid increase in health care costs and the resulting adverse effects on the ability of American business to compete in world markets. The problem is further complicated by the conflicting interests of employers, employees, retirees, physicians, hospitals, other health care providers, insurance companies, and others involved in the delivery of health care services. In summary, everyone wants unlimited health care but no one wants to pay for it!

There are many dimensions to the retiree health challenge. First of all, retiree health benefits are critical to those employees who have worked for years in anticipation of receiving them. Many people see these benefits as an important factor in their effort to ensure that they have a reasonable standard of living and quality of life in their retirement years.

Despite the importance of these benefits to individuals, they are not subject to many of the federal protections applicable to retirement plans and, consequently, they do not provide retirees with the same level of protection. This allows employers to substantially modify or, in some cases, even cancel these programs without violating federal law.

The general economy as well as the recent changes resulting from the 1980s merger and acquisition activity and the spate of bankruptcies within the United States have produced a number of legal uncertainties. Many companies are attempting to shift the cost of these benefits to employees, either through plan revisions or cancellation of all or part of their current programs. This produces considerable differences between the company's commitment and retirees' expectations. Such differences can be a precursor to litigation and/or congressional action.

The cost of retiree health plans are far greater than what most companies initially anticipated. Most of these retiree health promises were made many years ago when the anticipated cost of these benefits was considered to be insignificant. While few pension plans index benefits to the overall cost of living, many retiree health care programs promise employees benefits that are fully indexed with health care inflation. In addition, similar benefits...