The experiences from the weeks preceding the due date for this assignment have given me a unique opportunity. I had influenza A and a double-ear infection. The costs of seeing the doctor and purchasing medications easily exceeded $500. I am so thankful for the health insurance provided by my employer. My wife commented about her grandmother who is retired and has no health insurance to supplement the gaps in Medicare coverage. I wondered if my employer had health insurance benefits for their retirees. The data is amazing. Most companies are cutting health insurance benefits for retirees. This assignment gave me a great opportunity to research about retiree health insurance and answer the question: Should companies pay health insurance for retirees?
THE QUESTION
Due to union bargaining, companies began providing retiree health benefits in the 1950s and 1960s (Born). According to Gleckman, 1993 saw 40% of “large employers” give health benefits to retirees, but the percentage dropped to 21% by 2005 (par. 2). When a close look is given to most retirement benefit and compensation plans, we find that they are designed to promote older workers to retire early and allow younger cheaper workers into the workforce (Hedge 128). Many older workers see health benefits after retirement to be more important than the level of monetary compensation (Hedge 127). The reason is simple: “older people consume considerably more health care than younger ones” (Nyce 130).
People who are between the ages of 55 and 64 are more likely to be vulnerable financially if they lack health insurance (Nichols 452). Also interesting is that the number of chronic and/or serious health conditions is more common among older workers which leads to their desire for health coverage and further burdens them with the label uninsurable (Pollitz 235). Workers see their consistent work and time to take care of the company as reason enough for the company to take care of them. The federal government and state governments agree. All state governments, as well as the federal government, provide retirees with health benefits (Providing Health Care 11). However, I found newspaper articles from North Carolina to New York to Minnesota where those governments’ budgets are overwhelmed with increasing retiree benefit costs. The problem is clear: Retirees need health care; but, should employers get stuck with the bill?
Health care costs are rising and companies including governments are trying to find ways out of retiree promises. The utilitarian ethical approach would answer this question quickly by watching the bottom line and looking out for stockholders, but virtue ethics beg for the community’s and retiree’s well being. Other reasons also show the benefits of providing retiree health care.
THE BENEFITS
The benefits of offering health insurance to retirees for the company are numerous and some are philosophical. One philosophical reason revolves around the idea of attracting and retaining quality workers (Born). Workers are drawn to places where it is perceived that the company appreciates and wants to take care of their employees. These companies tend to have a “paternalistic” philosophy to provide for the needs of its workers (Born). Also, employers can use it as a way to “reward long-term loyal service” of its employees (Born).
Another reason companies implement retiree health care is to enjoy smoother relations with labor (Born). No employer wants to end up in the hot seat opposite a union. Retiree benefits are also ways to reduce wages with the promise of lifetime benefits (Born). The tax benefits available to those who provide benefits is also a valuable bottom line tool (Born). The last big reason companies choose to offer retirees with benefits is because it enables them to encourage older workers to retire. This creates job openings for younger more productive workers who have lower salaries which again impacts the bottom line of the company (Providing Health Care 109).
The benefits to the retiree are also plentiful as people without insurance sometimes go without care or medications ending with great complications and avoidable hospital visits (Pollitz 233). According to the Employee Benefit Research Institute (EBRI), “a 65 year-old who retires today without employment-based insurance and lives to age 80 can expect to pay well over $100,000 for health care” (Stires par. 5). I do realize that a purely utilitarian ethical approach would not see the benefits to the retiree as meaningful, but I believe virtue and deontological ethics would.
THE DISADVANTAGES
I believe the disadvantages to not having health insurance for the retiree has been made obvious and I will focus on the disadvantages directly related to the company. The most influential disadvantage is mandated usage of the Financial Accounting Standard 106 which requires companies to show their retiree health plans as a liability on their accounting sheet (Providing Health Care 18). This can make the value of a company with retiree benefits appear worse than those who do not offer retirement health care (Providing Health Care 115). Competition in business is fierce. Also, the cutting of benefits can improve their accounting sheet and can create “instant income” (Shultz). One illustration comes from Whirlpool Corporation who picked up $13.5 million after imposing caps and cuts to their retiree health care program. This policy change absorbed Whirlpool’s recall of microwave products while still raising profits (Schultz).
Generally, the cost of insurance for a pool of insured people is influenced by the health of the people in that pool. The advent of new technology and improvements in health care mean people who retire are living longer and lifetime coverage is incurring a larger amount of health care costs (Providing Health Care 14). Even though people who retire stay healthy initially they become “frailer” in their 80s (Providing Health Care 14). This is important because the ratio of active employees to retirees has drastically changed. In 1965, the ratio was 15 to 1. Now, that ratio is 3 to 4 active employees per retiree (Providing Health Care 61). In some manufacturing companies, the number of retirees outnumber that of active employees (Providing Health Care 17). The cost for maintaining insurance coverage grows out of control.
Employers are seeing that cheaper options for retirees to obtain outside coverage reduce the value they provide to the retiree (Born). They would rather they get insurance themselves. With the changes in Medicare drug coverage, companies would rather shift responsibility to Medicare (Born). This would release the fiscal responsibility from the company and help its bottom line.
PICKING A STANCE
After contemplating the initial question (Should companies pay health insurance for retirees?) and contemplating the data, I strongly believe that companies should not provide retirees with health insurance. Employers who choose to provide this benefit to retirees do so at the risk of bankrupting their company. I do not feel good about this stance, but my utilitarian tendency begs me to watch the liabilities of the company and increase profits for the stockholders. The retiree benefit can grow out of control and I feel it is unfair to the company to pay for this health care that is ultimately the responsibility of the retiree. Retirees routinely live into their eighties which is in excess of 15 years since their retirement. Companies just can not afford to have a liability cow sitting on their shoulders. Utilitarianism reminds me that I can determine the significance of an act by identifying the consequences of that act (Desjardins 27). The significance of not providing health insurance to retirees leads to many consequences. First, the business may not be able to attract the best of the older workforce. However, one of the reasons cited for providing it was so that businesses could use it to encourage retirement thus making space for the younger cheaper worker. It seems that does not make much sense to incur the expense of retirement benefits only to use it to get younger workers. So, I feel this consequence is acceptable.
Another consequence relates to the businesses ability to keep and retain quality workers. I believe the business can retain workers through other avenues that do not incur such a heavy burden including good working conditions and competitive salaries. I do not see a consequence there and find this argument unworthy of further discussion. Also, having retirement health care as a reward for long term service is not beneficial enough to warrant it. Surely, a company can find something better to reward the service of its employees. My father just received his 35 year pin from his employer and he is tickled to death knowing the company spent the money on his two diamond pin (The diamonds are real). He wears it proudly. Most importantly, I bet it costs lots less than fifteen plus years of health insurance.
I do find it difficult to deal with the consequence of dealing with labor unions on this issue. We have seen many recent disputes regarding the benefits of many unions. This is the argument that causes the most trouble for my decision. But, the decision of keeping health insurance for retirees must be limited if not avoided all together. I am afraid I do not see an adequate response to the unions and must figure in the loss of work due to labor striking. So, if a union is involved, I do not believe the bottom line would justify the complete removal of retiree health insurance. However, I do believe that the greatest good to the workforce and the community in which the business resides is to ensure the company’s viability for the future. I do not think keeping retiree health insurance accomplishes this.
THE ETHICAL LENS
Throughout my life, I have owned and/or managed many small businesses. In each case, I found my application of ethics blended and sometimes, completely changed from prior situations. Many years ago, it would be easy for me to announce my utilitarian approach to make a decision. However, I feel that I need to compare Deontological, and Virtue ethics to my stance and see how they differ. Could my stance be changed?
Deontology determines the correct path by identifying the duties, obligations, commitments, and responsibilities of the company (Desjardins 35). The company has a duty to ensure that active workers can stay healthy and continue being active workers. However, I believe that duty stops when the worker retires. I do not see that the company has an obligation or commitment to the retiree. I know this idea is going to be unpopular. So many individuals believe that a long hardworking tenure at a company warrants the company’s expenditure until death. But, I believe that is the wrong way of looking at it. Did the company not take care of you while you were active? In most cases, I think so.
Deontology would also recognize a free and autonomous choice. Maybe access to health insurance is the most problematic issue. So, giving retirees a choice of staying with company health insurance at a cost (instead of free) might prove helpful to the retiree while balancing the accounting thus removing the eye sore. The idea I struggle with is whether the retiree has a “right” to the benefit or is it a want? The stats are staggering and I think people need insurance; but, at what cost? Having the retiree subsidize through paying something to the company for the insurance seems like the best way to ensure both parties are happy. In short, I do not think Deontology changed my mind.
You will remember that my stance does not make me feel good. I felt forced to forgo my feelings and try to uphold my stance through rules. Virtue ethics allows me to give my feelings an equal stand (Desjardins 39). The idea of forgoing income to help the retirees who helped build the company before me makes me feel better. Virtue ethics allows me to see the people’s need for insurance and see if I can fit them into the budget. I do recognize and accept that many companies, and state governments have worked themselves into a financial catastrophe. They did this because they went all or nothing. That is where my feeling to do something finds a middle ground.
Maybe the solution is to define an amount that can be given to retirees for their health insurance premiums. I do believe the retiree would like to have all of it paid, but that just is not possible. However, giving something to them helps and makes me feel better. This idea has caused me to want to blend my stance.
In a 2006 article, Gleckman purports that S&P 500 companies have $321 billion in unfunded retiree health obligations. I am sure that business executives do not want anything to do with retiree benefits. Obviously, the approach currently used does not work. My new stance of using the bottom line figures for determining what a company can pay retirees for insurance benefits may still work. However, I do not believe my idea would garner much support from executives. However, medium sized business might not scoff.
The idea is simple. Owners want to provide their employees with retirement health insurance. But, they also want to maintain an income level. Owners could determine what they could live with, give themselves a little wiggle room, and divide the rest among retirees. I recognize that the amount given may always seem to be declining due to new retirees. The question is whether the amount given is worth anything. If the amount is $10 per month, I think the business might as well keep the money. However, if it is $100 per month, that might mean something. Using the EBRI’s findings, a 65 year old who retires and lives to 80 can pay $100,000 for health care (Stires par. 5). Let’s do the math. Fifteen years is 180 months. $100,000 divided by 180 months is $555.56 per month. Our $100 per month is roughly 17% of that retiree’s health care. I think paying 17% of a retiree’s health care is better than nothing.
FINAL THOUGHTS
It is easy to see that I have changed my stance to a degree. I still want to find a bottom line that the stockholders can be comfortable with. This does violate some core rules of Utilitarianism, but I feel it is worth it. Being able to provide something to a retiree is better for the wellbeing of the workforce and might even suit to improve recruiting and retention of high quality employees. I can see that setting this limit of expenditure will be different for all companies and that some just will not participate. The benefits of having health insurance for retirees cannot be argued. The fact comes down to whether a business and/or its stockholders enjoy feeling better like I do. Something tells me, I will never know.
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Works Cited
Born, Patricia H., and Alice M. Zawacki. “Manufacturing Firms’ Decisions Regarding Retiree Health Insurance.” Benefits Quarterly 22.1 (2006 First Quarter 2006): 34-44. Academic Search Complete. EBSCO. Scarborough-Phillips, Austin, TX. 15 Feb. 2009 <https://ezproxy.stedwards.edu:2048/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=19577179&site=ehost-live>.
Desjardins, Joseph. An Introduction to Business Ethics. 3rd ed. New York: McGraw-Hill, 2009.
Gleckman, Howard. “A New Twist on Retiree Health Care.” Business Week (31 July 2006): 68-68. Academic Search Complete. EBSCO. Scarborough-Philips, Austin, TX. 15 Feb. 2009 <https://ezproxy.stedwards.edu:2048/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=21663103&site=ehost-live>.
Hedge, Jerry W., Walter C. Borman, and Steven E. Lammlein. The Aging Workforce. Washington D.C.: American Psychological Association: 2006.
Nichols, Len M. “Policy Options for Filling Gaps in the Health Insurance Coverage of Older Workers and Early Retirees.” Ensuring Health and Income Security for an Aging Workforce. Ed. Peter P. Budettie, et al. Washington D.C.: National Academy of Social insurance, 2001. 451-475.
Nyce, Steven A. and Sylvester J. Schieber. The Economic Implications of Aging Societies. Cambridge: Cambridge University Press: 2005.
Pollitz, Karen. “Extending Health Insurance Coverage for Older Workers and Early Retirees.” Ensuring Health and Income Security for an Aging Workforce. Ed. Peter P. Budettie, et al. Washington D.C.: National Academy of Social insurance, 2001. 233-254.
Providing Health Care Benefits in Retirement. Ed. Judith F. Mazo, Anna M. Rappaport, and Sylvester J Schieber. Philadelphia: Philadelphia University, 1994.
Schultz, Ellen E., and Theo Francis.. “How Cuts in Retiree Benefits Fatten Companies’ Bottom Lines.” Wall Street Journal – Eastern Edition 243.52 (16 Mar. 2004): A1-A16. Academic Search Complete. EBSCO. Scarborough-Phillips, Austin, TX. 15 Feb. 2009 <https://ezproxy.stedwards.edu:2048/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=12521016&site=ehost-live>.
Stires, David. “Save an arm and a leg.” Fortune 148.9 (27 Oct. 2003): 208-210. Academic Search Complete. EBSCO. Scarborough-Phillips, Austin, TX. 15 Feb. 2009 <https://ezproxy.stedwards.edu:2048/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=11096946&site=ehost-live>.
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