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Erlanger Health System CEO Kevin Spiegel


Since he took the helm of Erlanger Health System in April, new CEO Kevin Spiegel has called for a series of cost-cutting measures that mean changes for employees.

* Employee benefits changes -- The hospital is restructuring how it handles paid leave, extended sick time and accrued leave of absence. The hospital's paid annual leave system will be converted to a "paid time off system" where staff still will be allowed to buy back their leave up to 90 percent of their hourly rate, but the maximum balance has dropped. The staff's "extended illness bank" is now a short-term disability bank, which will require a review board for approval. Hospital employees' maximum accrued leave of absence has been cut from 12 to four months.

* Pension plan -- Spiegel says hospital leadership is looking to "freeze" the defined benefits pension plan Erlanger has offered for decades, and shift all employees into a "modernized" retirement savings plan similar to a 401(k). This has not yet been finalized.

* Outsourcing -- Last month, Erlanger voted to outsource all of its food and housekeeping services. Approximately 250 employees were moved over to the new contractor's supervision and off the hospital's payroll and benefits plan.

* Tobacco -- Erlanger is implementing a tobacco-use surcharge of $35 per pay period for employees and spouses covered under the Erlanger medical plan.

Retirees from Erlanger Health System, Hamilton County's fourth-largest employer, will see their health insurance rates triple next year as the hospital joins a growing trend of employers backing away from such a benefit.

The move is the latest in a series of cost-cutting measures enacted since CEO Kevin Spiegel arrived at the hospital in April. All have been necessary, he insists, to bring Erlanger out of its financial slump the past several years.

"We just can't afford it anymore, or provide it anymore," Spiegel said of the retiree health benefit. "This year we had to ask the question: Can we really afford retiree health benefits at all? We decided not to eliminate the benefit in its entirety, but the retiree will be paying most of the cost."

On the hospital's current $1,000 deductible plan, retirees pay a $143 monthly premium for an individual and $292 for a family.

But starting next year, approximately 150 retirees will find themselves paying $374 premiums for an individual, and $783 to $1,132 for a spouse or family, respectively.

Erlanger will now foot about 10 percent of the health coverage costs, instead of about 70 percent as it had in the past, said Spiegel.

The sudden burden is a shock, some retirees say, since they relied on what they thought was a long-term commitment from their former employer.

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One Erlanger retiree said she found out about the change in a letter.

"The new hatchet man could have raised premiums gradually over two or three years instead of doing it all at once," said the retiree, who asked not to be named because she feared retaliation. "Erlanger was a good place to work, but don't even think about staying long enough to retire."

The hospital's retiree health insurance plan has been in place for decades, as a way to help former employees cover the gap between retirement and Medicare eligibility at age 65. That is the typical retirement age for an Erlanger employee -- but some are allowed to retire as early as 55.

Spiegel said the hospital does not have the option to more slowly step the rates up and grandfather in all current retirees "unless we can print money." The move is something that should have been phased out years before, he said. It now costs the hospital approximately $1.2 million a year.

"This is a hard thing to do. It's not easy," he said. "We are doing things that are hard because we're on a journey to be successful and provide safety net coverage, which is our mission."

The public hospital is under intense financial scrutiny after running $9.5 million and $7.9 million deficits in the past two years.

Erlanger has budgeted to end this fiscal year with a $5 million loss, factoring in millions in federal budget cuts that have come with the rollout of the Affordable Care Act combined with Tennessee's stance so far not to expand Medicaid.

Retirees use their health benefits at a much higher rate than employees, said the hospital's chief administrative officer, Gregg Gentry. Hospital officials say the move is estimated to save more than $500,000 next year.

In the changes to insurance, Erlanger also has reworked its plan design to a more limited network and will only reimburse for hospital care if employees and retirees go to Erlanger.

The hospital hasn't yet said whether it eventually plans do away entirely with retiree coverage, but it's the direction a growing number of employers have embraced over the past decade in an attempt to curb skyrocketing health costs.

Russ Blakely, a health insurance broker in Chattanooga for 35 years, said roughly 80 percent of retiree health benefits plans that existed 10 years ago are gone today, and the rest will likely become obsolete.

"More companies are heading down the path," Blakely said. "Obviously they don't want to do this. Who wants to say, 'I'm going to terminate a benefit you rely on?' But it is going to be harder and harder for employers to offer it."

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The Erlanger Baroness campus.

One of the issues driving the shift is that a retiree medical plan is almost in every case more expensive than an active employee medical plan, Blakely said.

Additionally, retiree eligibility for a medical plan is listed as a liability on employers' balance sheets, which Blakely said could be "crippling" for a company.

Several high-profile employers have recently made the switch, including DuPont and Caterpillar. In September, IBM Corp., GE and Time Warner Inc. announced they will cut retirees from their medical coverage, instead giving them a stipend and directing them to a private health insurance exchange.

"When IBM says I can't afford retiree medical insurance, that really says something about the state of health care costs and the crisis that we're going through," Blakely said. "So for Erlanger to be doing this is not out of character with what's going on."

But it's a sobering concern for those currently using those plans or planning on retiring soon, he acknowledged.

The benefit is still more common in the public sector, Blakely said. The city of Chattanooga spends about $10 million per year on retiree health insurance for those who are not Medicare eligible. The Hamilton County Schools system offers retiree health insurance at the same individual rate as active teachers.

Erlanger is a public hospital, but Spiegel says it is no longer "industry standard" for hospitals to provide such a benefit.

In Chattanooga, Memorial Health Care System does not offer health insurance for its retirees, while Parkridge Health System does, the hospitals' spokeswomen said.

Such plans are used as retention tools, but also as a way to make it easier for long-term employees -- who typically have higher salaries -- to move off the company payroll.

Gentry acknowledged the change could mean more employees delay retirement to ensure they keep their current rates for health coverage.

But he said the savings from changing the plan will still outweigh the potential for rising payroll costs.

Weighing those dynamics is something more and more companies that offer such benefits are doing now, whether they like it or not, Blakely said.

"Ten years ago I'm sure very few companies would imagine doing this," Blakely said. "It's just the nature of the beast of rising health care costs."

Contact staff writer Kate Harrison at or 423-757-6673.