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The Future of Retiree Medical Insurance

Last update on: Mar 15 2020

IBM shocked a lot of people when a late Friday report in The Wall Street Journal said the company was ending all retiree medical insurance once Obamacare kicks in. Instead of finding and paying for insurance coverage for its retirees, IBM will tell its retirees to seek their coverage on one of the new insurance exchanges to be created. IBM will give each retiree an annual amount to help them pay the cost of insurance on the exchanges. The retirees get to shop on the exchanges available to them and select the coverage they want. IBM receives certain in its planning. Instead of having to budget based on annual fluctuations in medical premiums and costs, it decides what it wants to pay for retiree medical care and lets retirees choose their coverage.

This likely will be a trend over time for both retiree coverage (for the few firms providing it) and employee coverage. Most small businesses apparently will stop providing coverage for employees and let them shop on the individual exchanges. It’s still too early to say how widespread these trends will be, but it looks like they are growing. That’s why medical coverage remains the wild card in most retirement plans and you need to plan for contingencies.

IBM’s move is the latest in a string of large changes that organizations have made to counter rising health costs. In August, United Parcel Service Inc. (UPS) decided to drop health benefits for 15,000 of its workers’ spouses, while Michigan Governor Rick Snyder tried to reduce costs by moving municipal retirees to exchanges.

“This transition provides more choice and flexibility at equal or better costs to our retirees,” IBM said in the statement. “While some retirees may be skeptical today, studies show that the majority of people who are presented the concept of an exchange are skeptical at first, but once they understand the options available to them through these exchanges, they have a more positive outlook.”

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