Erlanger cutting retiree insurance

Hospital joins trend as more employers ax retirement health benefits

photo The Erlanger hospital campus is shown from South Crest Drive.

Fast fact In 1988, 66 percent of companies nationwide with more than 200 workers offered retiree health benefits. In 2013, that number had plummeted to 18 percent. Source: Kaiser Family Foundation

The day after her 61st birthday, Renee Oakes received a letter she quickly regretted opening.

As the retired Erlanger Health System nurse unfolded the memo, she learned that the retiree health insurance she relies on would be canceled altogether on Dec. 31.

"With the heavy economic burdens Erlanger Health System has faced, it has become necessary to terminate our retiree health benefits," the letter read.

"When I got that letter, I cried," said Oakes, who had worked in the children's hospital from 1990 to 2012.

"It felt like a slap in the face. I stayed at that job. I was never there because of the money. I was there because I loved those kids. It feels like you are being punished for staying."

Erlanger, Hamilton County's fourth-largest employer, joins a growing number of employers dropping retiree medical coverage and citing rising health costs.

Erlanger's retiree health insurance plan, in place for decades, originally was created as a way to help former employees cover the gap between retirement -- which can be as early as age 55 -- and Medicare eligibility at age 65.

Even 10 years ago, such plans were popular as retention tools, said Russ Blakely, an insurance broker in Chattanooga. They were a way for an employer to reward long-term workers and to offer them retirement security.

"No one set these up with the intention that they would be taken away," Blakely said. "Unfortunately for employees at those companies, it is a common move now."

In 1988, 66 percent of companies nationwide with more than 200 workers offered retiree health benefits. That number had plummeted to just 28 percent by 2013, according to a study this year from the Kaiser Family Foundation.

And among companies of 500 or more employees that still offer medical plans to retirees under age 65, nearly 44 percent require the retiree to foot the entire bill for monthly premiums, another study from the United Benefit Advisors found.

Last year several major employers, including IBM Corp., GE and Time Warner Inc., eliminated retirees from their medical coverage, instead giving them a stipend and directing them to a private health insurance exchange.

Health costs may drive such decisions, Blakely said, since retirees use such plans at a much higher rate than current employees. But the decisions are enabled by new access to the individual insurance market through the Affordable Care Act.

Before that marketplace was created, under-65 retirees had few good options, since individual plans were prohibitively expensive and applicants could be denied for pre-existing conditions. The ACA marketplace offers subsidies to offset the costs of health coverage, and also prevents insurers from denying coverage because of pre-existing conditions.

"While no one really wants to terminate any health benefit, the fact that there is now an insurance option for the retirees using their health plan makes it a more doable option," Blakely explained.

photo Erlanger Health System CEO Kevin Spiegel

Erlanger CEO Kevin Spiegel began reducing employee and retiree benefits soon after he arrived last year, saying the expense was unsustainable. The employee pension plan was frozen and converted into a 401(k)-type plan; employees' paid leave has been restructured; and employee contributions to insurance premiums will go up for at least the next two years. Last year, the hospital tripled retiree insurance premiums.

Gentry said the plan's cost had risen to $1.2 million a year. Retirees' premiums are $374 for single coverage, and $783 for a retiree and spouse. After Dec. 31, retirees will have access to temporary COBRA benefits, said Gentry, with premiums for a $1,250 deductible plan going up to $424 for a retiree and $890 for a retiree and spouse.

"Erlanger has been very slow about making these changes -- much slower than most companies," said hospital Chief Administrative Officer Gregg Gentry. The recent decision will eliminate around 160 retirees from the rolls, he said.

But that reasoning frustrates Oakes, as Erlanger reported an $18 million profit for the year that ended June 30 -- its first profit in years.

"If they've had a turnaround, if they are in the black again, why can't they keep their promise to us?" Oakes asked.

Gentry said the changes are necessary even with Erlanger's current financial status, because the hospital has to think about future costs.

"The landscape is different today than it was in the '90s," said Gentry. "Other organizations in similar situations do not provide retiree health insurance."

In Chattanooga, Memorial Health Care System does not offer health insurance for its retirees, but Parkridge Health System does.

The benefit is still more common in the public sector. Chattanooga and Hamilton County both provide such plans, though County Commissioner Tim Boyd raised questions this fall when the costs of the county's retiree medical insurance reached $1.2 million last year.

Oakes, who now lives in Ringgold, Ga., has begun shopping on the insurance marketplace. The cheapest plans she has found have premiums around $500, with sky-high deductibles.

She wants hospital officials to consider changing their minds.

"All of these CEOs have come and gone over the years," she said. "But throughout that time, the nurses, the lab techs, all those people on staff -- we always went to work every day. We stuck with it."

Editor's note: This story was edited Jan. 2 to include the following correction: The number of companies nationwide with more than 200 workers offered retiree health benefits fell from 66 percent in 1988 to 28 percent by 2013. The story previously said the number had fallen to 18 percent.

Contact staff writer Kate Harrison Belz at kbelz@timesfreepress.com or 423-757-6673.

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