RETIREE HEALTH BENEFITS, INCLUDING PROPOS- ALS TO EXTEND MEDICARE TO COVER EARLY RETIREES AT AGE 60 HEARING BEFORE THE SUBCOMMITTEE ON HEALTH OF THE COMMITTEE ON WAYS AND MEANS HOUSE OF BEPKESENTATIVES ONE HUNDRED SECOND CONGRESS FIRST SESSION NOVEMBER 5, 1991 Serial 102-66 Printed for the use of the Committee on Ways and Means U.S. GOVERNMENT PRINTING OFFICE 51-620 WASHINGTON : 1992 ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice.Washington.DC 20402 ISBN 0-16-037709-9 COMMITTEE ON WAYS AND MEANS DAN ROSTENKOWSKI, Illinois, Chairman SAM M. GIBBONS, Florida BILL ARCHER, Texas J.J. PICKLE, Texas GUY VANDER JAGT, Michigan CHARLES B. RANGEL, New York PHILIP M. CRANE, Illinois FORTNEY PETE STARK, California DICK SCHULZE, Pennsylvania ANDY JACOBS, Jr., Indiana BILL GRADISON, Ohio HAROLD E. FORD, Tennessee BILL THOMAS, California ED JENKINS, Georgia RAYMOND J. McGRATH, New York THOMAS J. DOWNEY, New York ROD CHANDLER, Washington FRANK J. GUARINI, New Jersey E. CLAY SHAW, Jr., Florida MARTY RUSSO, Illinois DON SUNDQUIST, Tennessee DON J. PEASE, Ohio NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California JIM BUNNING, Kentucky BERYL ANTHONY, Jr., Arkansas FRED GRANDY, Iowa BYRON L. DORGAN, North Dakota BARBARA B. KENNELLY, Connecticut BRIAN J. DONNELLY, Massachusetts WILLIAM J. COYNE, Pennsylvania MICHAEL A. ANDREWS, Texas SANDER M. LEVIN, Michigan JIM MOODY, Wisconsin BENJAMIN L. CARDIN, Maryland JIM McDERMOTT, Washington Robert J. Leonard, ChiefCounsel and StaffDirector Phillip D. Moseley, Minority ChiefofStaff Subcommittee on Health FORTNEY PETE STARK, California, Chairman MARTY RUSSO, Illinois BILL GRADISON, Ohio BRIAN J. DONNELLY, Massachusetts ROD CHANDLER, Washington WILLIAM J. COYNE, Pennsylvania NANCY L. JOHNSON, Connecticut SANDER M. LEVIN, Michigan RAYMOND J. McGRATH, New York JIM MOODY, Wisconsin BENJAMIN L. CARDIN, Maryland (II) RETIREE HEALTH BENEFITS, INCLUDING PRO- POSALS TO EXTEND MEDICARE TO COVER EARLY RETIREES AT AGE 60 TUESDAY, NOVEMBER 5, 1991 House of Representatives, Committee on Ways and Means, Subcommittee on Health, Washington, D.C. The subcommittee met, pursuant to notice, at 1:05 p.m., in room 1100, Longworth House Office Building, Hon. Fortney Pete Stark (chairman ofthe subcommittee) presiding. [The press release announcing the hearing follows:] (l) 2 FOR IMMEDIATE RELEASE PRES8 RELEASE #22 MONDAY/ OCTOBER 21, 1991 SUBCOMMITTEE ON HEALTH COMMITTEE ON WAYS AND MEANS U.S. HOUSE OP REPRESENTATIVES 1102 L0N6W0RTH HOUSE OFFICE BBLD6. WASHINGTON/ D.C. 20515 TELEPHONE: (202) 225-7785 SUBCOTMHMEITHTOENEOROANBLHEEAPLETTHE, SCTOAMRMKIT(TDE.E, OCNALWIAFY.S),ANCDHAMIERAMNASN,/ U.S. HOUSE OF REPRESENTATIVES, ANNOUNCES A HEARING ON RETIREE HEALTH BENEFITS, INCLUDING PROPOSALS TO EXTEND MEDICARE TO COVER EARLY RETIREES AT AGE 60 The Honorable Pete Stark (D., Calif.), Chairman, Subcommittee on Health, Committee on Ways and Means, U.S. House of Representatives, today announced that the Subcommittee will hold a hearing on retiree health benefits, including proposals to expand Medicare to cover early retirees. The hearing will be held on Tuesday, November 5, 1991, at 1:00 p.m., in the main Committee hearing room, 1100 Longworth House Office Building. In announcing the hearing Chairman Stark said, "This hearing will examine the impact of the new FASB requirements on corporate liability and retiree health benefits. It will also explore the impact of proposals to lower the Medicare eligibility age on projected unfunded liability." Oral testimony will be heard from invited witnesses only . However, any individual or organization may submit a written statement for consideration by the Subcommittee and for inclusion in the printed record of the hearing. BACKGROUND Retiree health benefits have become a major concern for employers, employees and retirees in recent years. In 1988, companies in the U.S. paid $9 billion for health care for 7 million retirees and dependents. According to the U.S. General Accounting Office, in 1988 employers accumulated obligations of $227 billion for retiree health benefits for current and retired employees. The Financial Accounting Standards Board (FASB) revised its accounting rules in December 1990 to require companies to disclose health liabilities for post-retirement benefits for fiscal years beginning December 15, 1992. New accounting rules issued by FASB require employers to recognize accumulated post- retirement benefit obligations on the company's balance sheet. Some have suggested that the FASB disclosure rules will have a significant impact on corporate profits and stock market prices. Retiree health benefits have become a prominent issue in labor/management negotiations in recent years. From organized labor's perspective, the implementation of the new FASB rules may erode health benefits for current and future retirees. Employers are pursuing strategies to modify obligations in order to limit their financial liability. Some have cut benefits for current retirees. Increasingly, employers are limiting their liability, forcing employees and retirees to pay a greater share of health benefits. (MORE) 3 -2- Several bills, including H.R. 3205, the "Health Care Coverage and Cost Containment Act of 1991," and H.R. 1444, the "Medicare Eligibility and Expansion Act of 1991," would expand Medicare eligibility to cover early retirees. Such proposals could substantially reduce corporate liability for retiree health benefits. At the same time, the bills would assure basic health coverage for early retirees who may not have access to adequate employer-sponsored benefits. DETAILS FOR SUBMISSION OF WRITTEN COMMENTS : For those who wish to file a written statement for the printed record of the hearing, six (6) copies are required and must be submitted by the close of business on Tuesday, November 19, 1991, to Robert J. Leonard, Chief Counsel, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. An additional supply of statements may be furnished for distribution to the press and public if supplied to the Subcommittee office, 1114 Longworth House Office Building, before the hearing begins. FORMATTING REQUIREMENTS : EachstatementpresentedforprintingtotheCommitteebyawitness,anywrittenstatementorexhibit'submittedforthe printedrecordoranywrittencommentsinresponsetoarequestforwrittencommentsmustconformtotheguidelineslistedbelow. Anystatementorexhibitnotincompliancewiththeseguidelineswill notbeprinted, butwill bemaintained intheCommittee filesforreviewandusebytheCommittee. 1. Allstatementsandanyaccompanyingexhibitsforprintingmustbetypedinsinglespaceonlegal-sizepaperandmaynot exceedatotalof 10pages. 2. Copiesofwholedocumentssubmittedasexhibitmaterialwillnotbeacceptedforprinting.Instead,exhibitmaterialshould bereferencedandquotedorparaphrased.Allexhibitmaterial notmeetingthesespecificationswillbemaintained inthe Committeefilesforreviewand usebytheCommittee. 3. Statementsmustcontainthenameandcapacityinwhichthewitnesswillappearor.forwrittencomments,thenameand capacityofthepersonsubmittingthestatement,aswellasanyclientsorpersons,oranyorganizationforwhomthewitness appearsorforwhomthestatementissubmitted. 4. Asupplementalsheetmustaccompanyeachstatementlistingthename,fulladdress,atelephonenumberwherethewitness orthedesignatedrepresentativemaybereachedandatopicaloutlineorsummaryofthecommentsandrecommendations inthefullstatement.Thissupplementalsheetwill notbeincludedintheprinted record. The above restrictions and limitations apply only to material being submitted for printing. Statements and exhibits or supplementarymaterialsubmittedsolelyfordistributiontotheMembers,thepressandpublicduringthecourseofapublichearing, maybesubmittedinotherforms. 4 Chairman Stark. Good afternoon. Today, the Subcommittee on Health of the Committee on Ways and Means will turn toward health benefits for early retirees. We will examine how a lower Medicare eligibility age could reduce businesses' liability and im- prove health coverage. In December of 1990, the Financial Accounting Standards Board revised its accounting rules for retiree health benefits. Beginning in December of 1992, companies will be required to disclose their health liabilities for postretirement benefits. While the conse- quences of these new rules have yet to be determined, we are al- ready beginning to see an erosion of employer-provided health benefits. Discussions of health care costs have moved up the corporate ladder and are now being discussed at the highest levels. Employ- ers, faced with annual cost incr—eases of over 20 percent, are cut- ting, capping, and shifting costs cutting benefits for current and future retirees, capping their own liability, and moving toward de- fined contribution plans, and they are shifting costs to their em- ployees. American workers and retirees are paying the price. The majority of large firms increased retiree contributions between 1989 and 1991, according to a recent survey of large corporations. Employees and retirees are being asked to pay a greater share of their income for health care through higher premiums, deductibles, and copayments. Some firms have eliminated retiree benefits altogether. Health benefit obligations are becoming a major issue in negotia- tions between labor and management. Proposals to lower the Medicare eligibility age would offer a number of advantages for American businesses, their employees, and their retirees. First, lowering the age of eligibility to 60 would provide peace of mind to current and future retirees whose health benefits are threatened by rising health care costs. Second, proposals to lower the age would offer enormous savings to companies with substantial health benefit obligations. We will hear today from the U.S. General Accounting Office that a lower Medicare eligibility age could reduce total corporate liability for re- tiree health benefits by as much as $100 billion. Third, a lower Medicare eligibility age would, of course, ensure health insurance to those uninsured Americans between the ages of 60 and 64 who now are apt to fall through the cracks. To enter one's sixth decade, as the Chair well knows, without health insur- ance is a fear that no one should have to experience. Let me share with you just one case that illustrates the problem. I recently heard from Mr. Knox who is 64. He lives in DeLand, FL. On October 1, he received word that his retiree health benefits had been canceled 10 days earlier. He must now go to his local insurers and try to get insurance for himselfand his wife. Unfortunately, his wife, age 62, has Parkinson's disease. Local in- surance companies tell Mr. Knox that they doubt anyone will write a policy to cover her, and it will be 3 long years before she will be covered under Medicare. I have attached a file of similar stories that I have received from around the country that describe the fear and financial disaster that can await those who retire before 65. [The information referred to follows:] 6 Dear Chairman Stark: I read an article in the ChicagoTribune today about "EarlyRetirees Tell of Insurance Nightmare." I too have a story to tell. I worked 35 years atthe "X"National BankinChicago and retired at age 62 on April30, 1989. After 18 monthsonCOBRA,I was droppedby the newowners of the Bank and had to find my own insurance to cover me for the remaining 18 months until I reach age65 onApril 13, 1992. Ihavebeen a widow since 1969. The Insurance Industry considered me uninsurable because of prior health problems. I had two insurance men working to getme insurance as of November 1, 1990. The only thing I could do was to continue on with the Blue Cross-Blue Shield policy that the Bankhad except as a private customer , and pay insurance premiums of$621.00 per month for the next 18 months. This money must come out ofmy IRA, which is my pension. I have the amount of$11,178.00 in my pension. People don'tbelieve me when I tell them my story. Ijust hope I do nothave an increase next November. I have been covered sinceNovember 1, 1990, and was told atthattime,by the Bank, that the premium would be $590.00 per month butwhen I received the bill it was for$621.00 permonth. When Icalled, Iwas told thatwe had an increase. Not too many people can afford that amount and I am grateful that putting money away in my IRA worked out for me. Ihope you can do something for the people who can't do anything for themselves. Itis a crime that after working so hard tosave money to keep offthe reliefrolls that we have to put up with this. It seems like everything changed after I retired. We no longerget the same deductions and must use our pensions to exist at this time in our lives. Thank you for tryingtogethelp for the people who need it. Good luck! "A woman from Illinois" 7 Dear Congressman: I am62 and ahalfyears old andonSocialSecurity. Iretired at62because I had trouble getting work. My income is $665 per month from Social Security and $140 per week from part-time work. My hours were cutfrom37.5 to30, and I earn $5.35 per hour as aFull-Charge Bookkeeper. This is a low-pay area anditis always tough to get ajob. I moved here because mybrother and family live here. I formerly lived in Miami. I was forced by economics to cancel my health insurance-combined policies were $165 per month. Myemployer is small and does not offer hospital insurance. Blue Cross will not insure me at regular individual rates and it would cost too much tobuy private or State Risk insurance. I have a history ofblood clots,highblood pressure,obesityandIbrokemyupperback. Myfamily doctor,whom Iseldomgo to, prescribed drugs forhighblood pressure that cost$50 permonth. I cannotafford this expense,soI take cheap water pills instead. I don'tknow ifthese pills are doing anything for the problem,because I cannotafford to gobacktothe doctor. Ifanythinghappens to me now, I will have to applyfor food stamps, health care, and perhaps housing. Ifwe are the greatest nation on earth, how come we can't afford universal health care or Medicare for people less that65 years old? All industrial countries except South Africa and the United States have it, and many are poorer than we are. We give many breaks to other countries and many freebies;butnothingfor us. (Ipaid-in45 years worth ofincome taxes up to now.) INSTEAD OFMAKING WAR & GIVE-AWAYS,HOWABOUTMAKING PEACE&HEALTHCARE! " A woman from Florida" 8 Dear Representative Stark: I am 60 years old and I have been employed as a publishers representative for many years with a large company, HarcourtBrace Jovanovich. Theybecame victims ofa hostile take-over and I watched a distinguished company break down under the weightofexcessive debt. Aboutfour years ago I developed a heartcondition, whichwasbeing treated for medically and I was able tofunction without anyhandicap inmy work. Three years ago, a smaller firm, "XYZ", made me the proverbial "offer that can't be refused" and I joined them with their full knowledge ofmy heart problem. Ayear later,my doctor advised aby-pass operationwhichwentwell and after aboutamonthIwasback atwork. One yearlaterIwaslaidoffdue to "a slowdown in the economy." I can only speculate on the real reason but, it followed a letter explaining that the company's self-insurance plan would not allow additional expenses for myheart condition. Thank all ofyou for COBRA, which now covers me until March, 1993, (at a costofover $6000/year). I can only hope the by-pass will lastuntil someother coverage canbe found. The pointofall this is: what happens now? As asixtyyearold "cardiac case", I have had not onejob offer, although many people wantme to work for them as a "per-diem" or independent sales representative. I'll probably resort to this, but having talked to many insurance companies, including the company which offers the group policy for the National Association for the Self-Employed, they all say I'm uninsurable. This means that regardless of whether I can afford insurance or not, I can'tgetit and that leaves me and my family vulnerable for years, until I reach 65 and Medicarebecomes available, (assuming you can keep the wolves awayfrom it and itstill exists in 1996). After talking with neighbors and colleagues, I find I am notalone in this problem. There seems tobe an increasingnumberof55 to65 yearolds, who are laid offfor weak reasons, and find themselves very much alone and without a spokesman. " A man from Texas"