IBM (NYSE: IBM) has sent letters detailing its plans for compensating retirees as they are moved to a healthcare exchange. Retirees will receive as much as $3,500 through a tax-free account known as a Health Reimbursement Arrangement. The money can be used to purchase a variety of benefits.
IBM will not say how many retirees it has in North Carolina. Its active work force numbers an estimated 10,000.
Big Blue did recently meet with retirees to discuss changes in post-retirement health insurance coverage, which was disclosed a month ago. Retirees would use the money to buy Medicare Advantage or supplemental Medigap policies through a private Medicare exchange.
“We don’t break out that data by state,” said Doug Shelton, director of corporate communications for IBM. ”However, the fact that we held a briefing meeting in Raleigh though, is indication that there are a lot of post-65 retirees in your region.”
Under the plan that requires retirees to purchase medical, prescription drug, dental and vision coverage through Extend Health, the largest private Medicare Exchange, Retires ages 65 and older are eligible.
Former workers who retired before Jan. 1, 1992 will receive $3,500. Those who retired after that date will receive $3,000.
The amounts can be different based on options retirees select.
In the letter, which WRALTechWire obtained, IBM Chief Health Director Kye Rhee, an MD, told retirees:
“The Extend Health Medicare Exchange will offer you more plan options so you can choose the medical and prescription drug plans that best meet your needs.”
He added the change also provides “more flexibility” since the subsidy “will now be provided to you in the form of a tax-free account so you can decide how to spend your dollars.”
Shelton said pricing information for services was expected to be announced today as the federal Affordable Healthcare Act took effect.
Retired IBMers can access information about Extend Health at a site set up for ex-Big Blue workers: https://www.extendhealth.com
Shelton said IBM does not believe many retirees will not fully utilize the funds available.
“We expect few under spends,” he said. “We anticipate IBMers will use the entirety of their HRA to pay for premiums, co-pays, and other eligible medical expenses within the year.”
IBM’s move affects about 110,000 Medicare-eligible retirees.
The Extend Health exchange is operated by Towers Watson, the country’s largest private Medicare exchange.
IBM’s change is the latest in a string of large changes that organizations have made to counter rising health costs. In August, United Parcel Service Inc. 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.”
The company says it acted after projections showed that costs under its current plan for Medicare-eligible retirees will triple by 2020 and that the increases would be paid by retirees through premiums and out-of-pocket costs.
IBM has projected that with its current plans, costs for retirees would triple by 2020. Most of that would affect retirees’ premiums and out-of-pocket costs.
IBM said the new arrangement puts the retirees in a bigger pool of beneficiaries, spreading risk and lowering cost.
“IBM didn’t make this change to save money — it does not reduce our costs,” Shelton said, noting that IBM’s subsidies were capped in the 1990s.
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