“We retirees are really in a no-win situation,” she said, in an interview. “This has been a nightmare, and I’m in decent shape compared to some people.”
Health insurance for retirees used to come standard with most jobs. It was one more way for employers to try to recruit the best and the brightest during booming economies. But the private sector started doing away with retiree healthcare in the 1990s after regulators required companies report their liability for retiree medical plans. In 1988, about 66 percent of private-sector employers offered retiree health care; by 2013, only 25 percent did, said Mitchell, of the Pension Research Council.
But the public sector has been slower to do away with retiree healthcare, in part because strong unions have continued to negotiate for the benefit. Nearly 80 percent of state and local government organizations still offer retiree healthcare, Mitchell said. But the plans are extremely costly for governments already struggling with budget problems, and they only keep getting more expensive as health care costs continue to rise. While there are $800 billion in unfunded pension liabilities from public-sector employers across the country, unfunded retiree health-care liabilities are pretty big, too, at $627 billion.
The decision by public sector employers to take away benefits that they had long promised has angered many retirees, and an advocacy group, ProtectOurSeniors.org, has supported a bill introduced this year in Congress that would prevent companies—public and private—from taking away earned health-care benefits. The bill would also require companies that filed for bankruptcy to pay retiree pensions for at least three years.
“Post-retirement health benefits are not entitlements, they are earned benefits that were paid for by workers and guaranteed by employers,” said Jack Brennan, chairman of the Association of BellTell Retirees, in a statement earlier this year after the bill was introduced.
Public employee retirees who begin using the exchanges will find a very different type of health care, said Amanda Starc, a Wharton professor who studies health care management. The plans have higher deductibles and a smaller network. And, unless they get subsidies, the retirees will also find the plans expensive.
“They’re going to get some sticker shock,” she said. “They’re going to be asked to pay a little bit more for a little bit less.”
Shifting retirees onto the exchanges could have repercussions for people across the country, Starc said, because it could skew the pool of people in the exchanges. The more old, sick people and the fewer young, healthy people are in the exchanges, the higher costs will go for everybody.
But it doesn’t have to be all bad. The exchanges could increase transparency and give public-sector retirees more options, said Paul Fronstin, director of health research at the Employee Benefit Research Institute. Some retirees who can’t afford the health plans will qualify for subsidies, and the exchanges will force retirees to be more active in their healthcare.