According to the N.Y. Times (“…Benefit Cut at 65 in Retiree Plans“) in 2001it is estimated that one-third of large employers and fewer than one-tenth of small employers offered health benefits to retirees.Â These numbers may trend towards zero in the near future after an Equal Employment Opportunity Commission (EEOC) ruling.
NPR’s Marketplace reports (“Employers let off one health-care hook“) the EEOC has ruledÂ “that companies can cut their retirees’ health-care benefits once they turn 65.”Â This will lead to more government provided health care.Â Is this a good thing?
Businesses will certainly benefit from not having to be in the business of planning for the health insurance of seniors.Â Â According to the N.Y. Times, Dianna B. Johnston, a lawyer for the commission, said many employers and labor unions had told it that âif they had to provide identical benefits for retirees under 65 and over 65, they would just drop retiree health benefits altogether for both groups.â?
Further, a paper by Gopi Shah Goda, John B. Shoven, Sita Nataraj Slavov (reviewed on 10 Oct 07) claims that having Medicare as a Secondary Payer (MSP) creates an implicit tax for elderly workers.Â The authors find that the tax is 15-20 percent at age 65 and increases to 45-70 percent by age 80.Â While the authors claims are based on how MSP effects seniors’ incentives to work, it does not comment on whether or not implicit contracts guaranteeing retirees right to private insurance should be abolished or not.
In essence, this ruling is a transfer from retirees to businesses.Â Retirees who believed they would receive private health insurance from their employer now must rely on Medicare or pay for private insurance in the individual market.Â Businesses benefit from being able to eliminate costs from insuring retirees.
This raises the larger question of who should be paying for health insurance.Â The government could do it, but this may lead to a monopolistic system with little choice and a potential for corruption.Â Individuals could buy their own insurance, but without a mechanism to pool risk, sick individuals will have to pay significantly higher premiums than healthy individuals. Insurance is supposed to insulate individuals from income shocks due to changes in their health status and an individual market will not be able to accomplish this goal.Â A natural risk pooling institution is the employer, but employers do not want to be in the business of planning their employees (large) health insurance choices.Â Who should pay for health care is at the crux of the health care debate and needs to be resolved before policy reforms are implemented.