Retiree health care becomes contentious issue

NEW YORK — Leroy McKnight retired in 2000 as an hourly employee and union officer after more than three decades with General Motors Corp., thinking his retiree health care needs were covered. Now, he’s taking stock trading classes at a local college, just in case.

“People like me worked for 30 years for wages and health care while we worked and a pension and health care in retirement,” McKnight said. “They’ve come along and changed that, and it isn’t fair.”

GM is among hundreds of American companies that are cutting back on retiree health care by suspending benefits or requiring retirees to pay more for their care.

McKnight, who is 56, said that some GM retirees worry that they may have to go back to work to cover higher medical expenses.

Retiree health care benefits helped several generations of Americans deal with the ills that come with aging. Now a growing number of retirees are seeing their benefits cut or eliminated as companies struggle to contain health care expenses. Meanwhile, fewer companies are offering retiree health care coverage to their current workers.

“People are being put in a very difficult situation,” said Paul Fronstin, director of health research for the nonprofit Employee Benefit Research Institute in Washington, D.C. “Most don’t realize how much money it’s going to take to cover what they’ll need for out-of-pocket costs.”

Estimates vary, but Fidelity Investments recently said a 65-year-old couple retiring without employer-provided health benefits likely will need $200,000 just to cover medical costs in retirement beyond federal Medicare coverage. Fronstin believes the figure could be $250,000 or more, given the rapidly rising costs of medical care and how long many Americans are living.

While Americans who are still working have some time to accumulate additional funds, those already in retirement are put in an extremely difficult position when benefits they counted on are cut back.

That’s the case for many retired Ford Motor Co. and GM workers, whose retiree benefits are being changed under settlements with the United Auto Workers. Retirees are being asked to pay deductibles and co-payments for the first time, and their payments for prescription drugs also will rise.

Ford, GM and other companies have argued that they can’t afford to pay full benefits if they’re going to be competitive with foreign manufacturers as well as domestic competitors that don’t provide benefits to their workers.

McKnight, of Haslett, Mich., is among former auto workers suing to try to get full benefits restored.

Mark S. Baumkel, a class action attorney in suburban Detroit who is handling the autoworkers’ case, said the benefits change will affect older retirees most because their pensions are lower than those of younger, higher-salaried workers. He estimated that some older auto company retirees will see pensions of $9,000 a year reduced by as much as $1,100 a year in health costs.

“My argument to the judge is that making Ford or GM $1,000 more profit on each car isn’t going to sell more (Pontiac) GTOs,” Baumkel said. “If people want a Lexus rather than a Ford, they’re not going to buy a Ford because Ford is paying less in retiree health care.”