Not a future they expected

It’s been a difficult year for Estella Hyde.

In January, the degenerative muscle disease that’s plagued the former nurse for more than a decade flared up and has left her unable to walk the length of a block. In March, her doctors broke the news that she had advanced breast cancer and would require chemotherapy and a mastectomy.

For Estella, the last nine months have been a medical merry-go-round of operations, doctors visits, group therapy meetings and twice-weekly treatments where she is hooked up to a machine that cleans her blood and slows the progress of her reinvigorated muscle disease, myasthenia gravis. Late this spring, she lost the last of her once-long auburn hair.

This summer, things took another unexpected turn for the worse when Estella’s husband, James, received a letter from his former employer. It said the couple would soon have to pay for up to 40% of their medications, which now run $1,250 a month. The company, Michigan-based Arvin Meritor Inc., went on to say that it will continue phasing out coverage for retirees over the next several years, leaving potentially huge bills on the Linesville, Pa., couple’s shoulders.

“We’re totally caught now,” says Estella, 58, whose cancer prognosis remains unclear.

The Hydes are among the growing ranks of retirees -- and future retirees -- being forced to confront a harsh new reality of rapidly rising health costs. Retiree medical coverage, which many people assumed was guaranteed for life, is dramatically shrinking.

Saying they can no longer sustain the huge bills, employers are swiftly raising retirees’ insurance premiums and co-payments for services such as doctor visits and prescription drugs. They’re axing benefits such as dental coverage and life insurance. A small number of companies are walking away from paying for their healthcare altogether.

According to a report released earlier this year, nearly three-fourths of the companies surveyed by the nonprofit healthcare policy group Kaiser Family Foundation and human resource consultant Hewitt Associates said they have made retired workers shoulder a higher share of insurance premiums in the last year. In the survey, 86% of companies said they planned to increase what retirees pay for health insurance in the next three years.

Those most affected are the 3 million retirees, such as the Hydes, who now find themselves in a precarious position. Because they’ve yet to turn 65 and are therefore ineligible for Medicare coverage, they must either pay the higher costs, find cheaper insurance or go without medical benefits.

Future retirees won’t fare much better. According to benefits consultant Watson Wyatt & Co., only 10% of companies are expected to offer any retirement health coverage by 2031. That means all but the tiniest percentage of workers younger than a typical baby boomer will be responsible for the lion’s share of their own retirement medical costs.

“Employers are running away from writing the check for retirees’ healthcare as fast as they can, and they’re showing no sign of slowing down,” says Paul Fronstin, director of the health research program at the Employee Benefits Research Institute in Washington, D.C. So many cuts are happening that Fronstin estimates a 55-year-old today who lives to 85 will need about $300,000 in savings to pay for supplemental health insurance and out-of-pocket expenses in retirement. Younger workers could need twice that much.

Raising their own cries about rising health costs, the companies reducing retirement benefits say they can’t stay profitable if they don’t radically realign what they spend on retirees’ medical care. Health costs have risen dramatically over the last decade -- doubling in the last five years -- and that’s left a house of cards atop many employers’ balance sheets.

In a bet that now looks either foolish or smart, most put off paying higher salaries decades ago by offering generous pensions and health coverage down the road. That’s an offer most now can’t afford to fulfill. According to the Kaiser-Hewitt survey, the cost of giving retired workers health benefits rose by nearly 14% to $20.6 billion in 2003 for the companies in their survey.

For example, Lucent Technologies Inc., which cut retiree health benefits this year and recently announced plans to do it again in 2005, has 32,000 current employees who must support the costs for 225,000 retirees and dependents. Arvin Meritor, the auto parts manufacturer that’s cutting the Hydes’ benefits, says it has little choice but to scale back. “We must take aggressive steps to remain competitive in an increasingly challenging manufacturing environment,” said Krista McClure, a company spokeswoman.

What makes cuts to medical coverage so hard for many retirees to swallow is that they are often perfectly legal. Unlike pension plans, which are protected by federal law, employers can cut health coverage at any time. A few retirees have successfully sued former employers for their benefits in recent years. But employment lawyers say that can happen only in rare cases where employers didn’t specifically reserve the right to change their minds in writing or where workers can prove a company verbally promised the benefits were permanent.

“Most company contracts have what we call ‘weasel’ clauses that protect them from any liability,” says Norman Stein, a law professor who specializes in employee benefits at the University of Alabama. Stein says studies show few employees ever read the clauses anyway, which are often in fine print and in language that isn’t always easy to understand.

Of course, many working Americans are coping with rising health costs. But seniors often find themselves in a particularly difficult spot when their benefits shrink. The vast majority live on fixed incomes with nest eggs that have taken big hits during the recent stock market decline. Many don’t have a contingency plan because they had no idea they needed one. They entered the workforce in a different time and place -- employers were more paternalistic, unions were strong and health costs were still low.

Those who haven’t retired or are over 65 have more options. In 2006, Medicare will begin paying for prescription drugs, which could significantly help those who’ve seen their employer-paid prescription drug coverage decline.

And under the new federal health savings accounts, which are tax-sheltered accounts similar to IRAs but earmarked for medical expenses, people can now contribute up to $2,600 a year, as long as they match it with a low-cost, high-deductible health plan. (Those older than 55 can contribute more.) Still, the accounts, which have been very slow to catch on so far, aren’t likely to significantly beef up many retirement portfolios because of the contribution limits.

As more companies downsize, younger workers also have the benefit of pausing before agreeing to any early retirement offer that could change down the road.

For the Hydes, life now is a far cry from what they once envisioned for their golden years.

The couple married in 1964, and James landed a job at a nearby factory in Ohio overseeing a machine that made brakes. The job paid $3.65 an hour -- incredible money he remembers thinking -- and included benefits. “I didn’t pay a cent to see a doctor or get a prescription,” he said. Hyde worked at the plant for 22 years, eventually running one of the plant’s biggest machines and his wages jumped to $12 an hour.

But in the late ‘80s, the company decided to move the plant from Ohio to North Carolina to save money, and James was given the chance for early retirement. At 44, he took the option of lifetime health benefits over a lump-sum payout, thinking if he got laid off again down the road, at least he would be covered. “I took their word,” Hyde said. “These were supposed to be mine for life.” (Hyde worked in a plant owned by Rockwell International, but the company’s automotive division was later spun off and now Arvin Meritor pays his health benefits.)

He found another plant job two years later, but was laid off in the early ‘90s. The couple survived on her job as a nursing professor before she had to stop working several years ago because she no longer had the strength to lecture. He recently had a side business selling antiques at local malls and fairs but had to stop when Estella got sick again and he could no longer travel.

Every morning, Estella swallows nine medications, and seven more pills throughout the day. This summer, she had such a bad reaction to one of the drugs she ended up in the hospital for several weeks. The infection forced doctors to stop her chemotherapy for two months, which they hope to resume soon.

The couple says they are taking life one day at a time, ever mindful of the good days and easy on themselves when they recognize the pressures of the last year are taking their toll. “If I find we’re both blue, we try and do something fun like take a drive,” Estella says. “Then some days, I let myself have a good cry.”

Since receiving their letter in July, the Hydes have obsessed over their finances. They live on a fixed budget, which has already been squeezed from Estella’s years of medical bills. From her former teaching job, Estella brings in $1,480 a month from Social Security and another $967 in disability pay. James’ pension is $590 a month.

The couple has been trying to tighten their belts as best they can. Pricey meats at the supermarket and dinners at restaurants with friends are out as are road trips to Georgia to see their five grandchildren. She has tried saving by making birthday gifts -- she recently hemmed appliques onto clothes from the sale racks at Wal-Mart for her daughter-in-law and framed photos she took of grapes for a friend who loves wine. She’s also taken up knitting again. Already this year, she’s made more than 75 hats and scarves and sold them by word of mouth for up to $20 a piece. James, meanwhile, has given up his dream of buying an antique car.

“We’re running out of ideas,” she says. Both say they don’t want to sell their house to pay medical bills.

This isn’t the first time the couple’s health coverage has been cut. Last year, they lost their dental and vision insurance, which recently resulted in a still-unpaid $700 dental bill because Estella had a tooth infection stemming from chemotherapy. The company no longer pays for hearing aids, which James thought he got before the cutoff but now cost him $4,500. Other bills also pop up: Earlier this year, their annual property taxes jumped to $3,000 after the town announced plans to redo the elementary and high schools.

At 61, James is thinking of going back to work to get medical coverage until they both qualify for Medicare. But he knows as a machinist there’s little chance someone his age will find a job nearby. Even if he does, it may not include medical benefits.

When asked if he is angry, James takes a 15-second pause then comes back to phone. “Yes,” he says, his voice cracking slightly. “I’m furious. I just don’t know what we are going to do.”

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Shrinking benefits

Following is a list of employers that have recently scaled back health benefits for retirees:

Aetna Inc.: Will stop subsidizing health insurance for employees who retire after 2007. In January, will stop funding all retirees’ dental coverage.

Bethlehem Steel Corp.: Filed for bankruptcy protection in 2001. Canceled all health benefits for its 95,000 retirees last year.

Caterpillar Inc.: Starting in January, retirees will pay significantly more of their health insurance premiums, with costs ranging from $180 a month per individual to $370 per family.

Dupont Co.: Now charges pre-Medicare retirees higher health insurance premiums than it charges current employees.

Levi Strauss & Co.: Stopped subsidizing Medigap coverage (private insurance that covers services Medicare does not) for all retirees and raised deductibles on prescription drugs to as much as $50. Will stop subsidizing benefits for future retirees.

Lucent Technologies: In January, stopped covering dependents of employees who left after May 1990 if they made more than $87,000; level will fall to $65,000 next year.

Sears, Roebuck & Co.: Starting next year, all subsidies for retiree health benefits will be eliminated for new hires and employees younger than 40. Is also capping employer contributions to retiree health benefits at 2004 levels.

Tribune Co. (owner of The Times): Has stopped subsidizing retirement health benefits for those hired after March 2003.

Whirlpool Corp.: Beginning this year, retiring employees are paying 20% of their health insurance costs.

-- Daniel Costello