Another perk joins the endangered species list
With health-care bills taking a bigger bite out of the bottom line, coverage for retirees is disappearing fast. Retiree medical benefits are rare and getting rarer.
by Geoffrey Colvin, FORTUNE senior editor at large

NEW YORK (FORTUNE) - Only 33 percent of large firms (200-plus employees) offer them, half the proportion that offered them in 1988. Most experts think that dropoff will continue, which means that such benefits in any substantive form will just about disappear within several years.

The reason is simple: Retiree medical costs are galloping at double-digit rates, and in an increasingly competitive global economy, the few remaining firms that offer those benefits find them harder to afford. So some companies are eliminating such benefits entirely: Alcatel, (Charts) and utility giant TXU (Charts) have done so in recent years. Large and medium-sized employers have been cutting benefits to Medicare-eligible retirees - let the federal government take care of them - even faster than to early retirees.

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Many other companies (SBC, Caterpillar (Charts)) are scaling benefits way back, requiring retirees to pay bigger deductibles or a larger share of their health insurance premiums. In a landmark concession last fall, the United Auto Workers even agreed to such a change in its contract with General Motors (Charts).

Many companies (ConocoPhillips (Charts), Coca-Cola Enterprises) are also capping their total retiree health-care outlays at some specified dollar amount. Once the company hits the cap, retirees have to assume any additional costs for their coverage. Those are all variations on a theme: Retirees will pay more every year for their medical coverage.

And they can't do much about it. Most companies that offer retiree medical coverage are free to reduce or eliminate it as they wish. The major exception occurs when the coverage is part of a union contract, though some lawyers believe even that promise isn't ironclad.

The likeliest future is that benefits will keep shrinking until the few retirees who get any help at all from former employers will just be invited to buy their own medical insurance at the company's group rate. A few large employers (Intel, IBM) are also experimenting with so-called retirement medical accounts. The company contributes to such accounts while the employee is working and sometimes after. The retiree uses the money to buy insurance at the company's group rate. And if the account doesn't contain enough money? That's the retiree's problem, not the company's. With retiree health care, as with pensions, the good old days are gone or going fast. Top of page