Imagine the following: after working for years and preparing for retirement, your company suddenly chooses to switch its pension plan, so that the level of benefits you had been counting on for years would not be there when you retire. On top of that, while your company had a practice of paying retiree health care benefits, it suddenly decides that it’s too expensive to ensure retirees, and so it eliminates the plan entirely. So you’re ready to retire, but you cannot do so, because you have no pension and no health care, after relying on promises made, in some cases for decades, by your employer, who is using the current economic climate to justify this unprecedented shift. While it sounds like a worst-case scenario designed to alarm the public, it is one that is increasingly happening across the United States to older workers, who instead of hitting the most relaxing stage of their lives and reflecting on their accomplishments, are being forced to go back to work, in some cases just to be able to have adequate health care. And for those unable to return to the workforce, life is becoming exceedingly difficult.

In the article Companies Limit Health Coverage of Many Retirees, Milt Freudenheim of the New York Times talks about the new disturbing trend of large employers to reduce or completely eliminate medical benefits for some or all of their retirees. While many of the companies continue to allow retirees to participate in a group plan, they can only do so if they pay for the coverage themselves, rather than having the coverage subsidized or completely covered by the employer. To make matters worse, the retirees are often segregated into a separate insurance pool, away from younger and healthier workers, who would help keep the costs lower for the group. The increase can often be a dramatic one, of several hundred dollars a month or more, which can be impossible to absorb on a fixed income. And retirees too young for Medicare may have no choice but to go back to work to pay for the coverage, or to go without.

According to a recent study, in the last year alone, 10 percent of 408 large corporations surveyed eliminated coverage for future retirees, while 71 percent increased retirees’ contributions for their coverage. (See Cos. Slash Retiree Health Benefits) The trend shows no sign of lessening: one-fifth of companies said they were likely to terminate health coverage for future retirees in the next three years. A separate study of employers with more than 1,000 employees found that in 2003, 57 percent of firms offered health benefits to Medicare-eligible retirees, down from 80 percent in 1991. The survey was taken before Congress passed a Medicare prescription drug benefit last year. Many feared that benefit would provide companies with an excuse to drop coverage. To stop the erosion of corporate-sponsored retiree health plans, however, the new law includes an $89 billion subsidy for employers that retain coverage. It remains to be seen whether the subsidy will be enough. Most experts agree that companies are less likely to terminate benefits for current retirees, but fewer firms will offer them to younger workers.

Unlike pensions, which are regulated by law, companies are not legally obligated to set aside money to pay for retirees’ health benefits. Most health plans can usually be changed or terminated at the company’s choosing, with no appeal available to the retirees. As noted by James Norby, president of the National Retiree Legislative Network (NLRN), these companies have found “a clever way of getting out of the contract they made to people who had been retired for 15 or 20 years.” What’s more, instead of acknowledging that they’re reneging on their promises, companies are pitching the upside of the elimination (as if there was one) by generously offering to keep retirees on their plans, if they pay for their coverage. While the rates may be less than if a retiree was forced to purchase individual coverage (especially for those with health concerns), the fact remains that this coverage was promised, given to hundreds of other retirees, and now it’s gone, most likely never to be resurrected, even if the economy improves.

The NLRN and other groups are hard at work on legislative proposals regulating retiree health benefits. While legislation is unlikely to be passed in the current Congress, it may be the only solution, given that corporate employers don’t seem to be honoring any ethical obligation to give their retirees what they’ve been promised.