USA: Retiree health benefits in jeopardy

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But no-one doubts that in major matters concerning scienceand technology, Clinton and Gore rely heavily on hisjudgment. A committed environmentalist long before it waspolitically fashionable, Gibbons had a hand in what mayturn out to be one of the Clinton administration’s most

important innovations in science-related matters, theestablishment of a National Biological Survey, as a

counterpart to the venerable US Geological Survey.The proposed survey, now under study in the Interior

Department, would be charged with the study and

protection of biodiversity throughout the nation. The ideaarose from conversations among Gibbons, Interior

Secretary Bruce Babbit, former Colorado Senator TimWirth, and Thomas Lovejoy, a well-knownenvironmentalist who is a senior official at the SmithsonianInstitution. At Babbitt’s invitation, Lovejoy is taking leavefrom the Smithsonian to plan the survey, with guidancefrom the National Academy of Sciences.

Gibbons’ run-in with the animal experimentation campoccurred at his confirmation hearing, when a Senator,apparently primed by concerned researchers, asked him forhis views on that issue. Gibbons replied, "I’m particularlyinterested in the native American concept of the use ofanimals. When the American Indian killed an animal forfood and shelter, the Indian always said a prayer of

thanksgiving to that animal for having given up its life so thatthe person might live". "I think we sometimes don’t giveenough attention", Gibbons continued, "to that notion ofthe ethical use of our power over the rest of the world".Gibbons noted that the OTA had produced a study showingthat "there are an enormous number of technologies thatnow make it possible to do ... testing and research andteaching without having to sacrifice animals as we do".Though expressing concerns about the science adviser’s

views, an official of the National Association for BiomedicalResearch conceded that the OTA report on animal

experimentation was a balanced job.Daniel S. Greenberg

Round the World

USA: Retiree health benefits in jeopardyThe Senate Subcommittee on Labor and the House of

Representatives Subcommittee on Retirement Income andEmployment convened separately last month to investigatereports that American corporations are unilaterally reducingor eliminating retiree health benefits (RHB). Approximately9 million retirees and 32 million active workers are enrolledin RHB plans, according to the General Accounting Office(GAO). It is believed that companies are cutting RHB tominimise the impact of an accounting rule effective inJanuary.The new rule, Financial Accounting Standard 106 (FAS

106), mandates "accrual accounting" for reporting RHB.Under old standards, companies reported only currentRHB cash payouts on a "pay-as-you-go" basis, and did notreport future RHB liabilities accruing to active employees.FAS 106, however, requires companies to report all annualRHB liabilities, both cash-based and accruing, and chargethese against operating income. Although real RHB costsremain unchanged, the net result of the new accounting isreported profits decline. Therefore, corporate managers,mindful of credit ratings and stock market perceptions, havebeen moving to reduce RHB in order to strengthen their(paper) positions.

The original intent of FAS 106-"to enhance therelevance and representational faithfulness of the

employer’s statement of financial position"-may haveunwittingly provided an excuse for these actions. But manyanalysts believe there are at least two other, more compellingreasons other than FAS 106 to explain corporaterestructuring of RHB. The first is increasing demographicburdens. The American population is ageing and workersare retiring earlier. Over the past four decades, the numberof Americans aged 55 and over increased by 40% andemployment rates for males aged 55-64 fell from 90% to67%. For men over 65 the decline has been greater, 47% to17%. The growing phenomenon of early retirement--40%of retirees are under 65-is particularly worrisome tocompanies since costs for non-Medicare beneficiaries aremuch higher than those for retirees eligible for Medicare.The second corporate impetus for restructuring RHB ishealth-care inflation. Over the past two decades, medicalinflation has consistently outpaced general inflation, andaccording to Senate testimony, the average cost peremployee of employer health plans has increased by morethan 100% since 1984. On average, RHB are 14% of

corporate health-care costs for medium and largeemployers, though for some industries, such as

communications and utilities, RHB are 20% of costs.(Firms with fewer than 100 employees generally do not offerRHB.)GAO has estimated that accrual accounting will "cost"

more than pay-as-you-go accounting until the year 2018,when it will become "cheaper". Most companies will notwait 30 years to lighten the actuarial load imposed by FAS106. Several, acting precipitously-some say recklessly-have eliminated RHB altogether and, as might be expected,have been sued. Attorneys for unionised retirees arguebreach of labour agreement under Section 301 of the 1947Labor Management Relations Act (LMRA) and generallywin. Non-unionised retirees, however, are not protected byLMRA and their cases are more problematic. They mustprove, under the 1974 Employee Retirement IncomeSecurity Act (see Lancet 1992; 340: 1278), that terminationof RHB violates either a written RHB plan document, or anoral commitment by management that RHB would not beterminated. Since most RHB plans reserve the right toterminate, cases often hinge on inconsistencies of unwrittenpromises. Non-unionised retirees often lose.

Fortunately, however, despite several well-publicisedlawsuits, most companies have not eliminated RHB. Thereis, however, a widespread effort by corporations to shiftRHB costs onto retirees. A 1989 GAO survey reported thatall of 29 Chicago companies polled had reduced RHBprovisions between 1984 and 1988. On follow-up a yearlater, 21 of the companies had made further reductions inRHB. Nationwide, the number of companies offering RHBdeclined almost 20% between 1988 and 1992, according toHay/Huggins, an international benefits consulting firm.Moreover, Hay/Huggins has reported that over half of firmsstudied were either increasing or considering an increase inretiree contributions to RHB. Cuts in medical benefits,increases in age and service requirements, and increases incontributions for dependent coverage have also beenundertaken or considered. Interestingly, the influence ofFAS 106 on these actions is not so clear. Almost half of firms

reported they had not yet completed their FAS 106

calculations; indeed, nearly one in five had not even begun.

David H. Frankel