General Motors Cuts Healthcare for Retirees

Note to retirees: Don't count on your retiree health insurance from your company. Even if you have the agreement in writing, many retiree health insurance agreements include clauses giving the company the right to modify, suspend, revoke, terminate, or change the program at any time. And for many employers, that time has come.

General Motors plans to eliminate retiree healthcare coverage for approximately 100,000 white-collar retirees at the end of this year. Former factory workers, however, have union contracts that prevent the company from revoking coverage.

To help these retirees pay for their new coverage, GM is raising monthly pension payments by $300, the New York Times reports, which typically means $240 or $255 after taxes. Yes, there is always Medicare for retirees over age 65. But the extra $3,600 annually from GM, or perhaps $108,000 if a retiree collects that amount over 30 years, may or may not cover the lifetime out-of-pocket costs that Medicare recipients face. Retirement researchers estimate that a retired couple will need between $205,932 (Boston College Center for Retirement Research estimate) and $225,000 (Fidelity Investments estimate) to cover healthcare costs in retirement. And the Employee Benefit Research Institute says a couple will need a staggeringly high $635,000 to be almost completely sure of having enough money to cover all health bills beyond what Medicare covers, not even including the cost of long-term care.

GM is the latest in a string of companies—including Ford and Chrysler—to cut healthcare coverage for retirees. Companies that aren't cutting retiree health benefits completely may increase premiums and out-of-pocket costs. Kodak, for example, plans to shift health insurance costs to retirees over the next 10 years and phase out employer-paid coverage for dependents completely. The camera company also plans to cut dental coverage and life insurance for retirees beginning next year.

Given the ambiguous language that many retiree health insurance agreements are written in, many former employees will have little choice but to deal with the increased expenses. The U.S. Pension Benefit Guaranty Corp., a government agency that insures private-sector pension plans and pays benefits to workers if a plan fails, does not insure health insurance benefits. Some Kodak retirees have taken to picketing outside the company's headquarters to protest the benefit cuts. So far, no additional changes to the retirement plan have been made public.