Sunday, September 15, 2002
Health cost spiral stuns retirees
Many feel betrayed by company they served
By Mike Boyer, email@example.com
The Cincinnati Enquirer
When Ed Fisher retired in late 1989 from what is today Cognis Corp. in Winton Place, he thought he and his wife would never have to worry about health insurance. Back then, Mr. Fisher, who was director of sales and marketing administration for the specialty chemical maker, paid only $8 a month for his and his wife's insurance coverage.
I told my wife not to worry, if I died, her insurance would only be $4 a month. I even had it written into my will, said Mr. Fisher, who lives in Anderson Township.
That was until this summer, when he and most other Cognis retirees got a letter from the company notifying them of a new, cost-sharing plan that dramatically increases their health insurance costs or forces many retirees to contribute to their coverage for the first time. Starting Sept. 1, the Fishers' monthly cost, for example, increased to $165.45.
I think it stinks, said Mr. Fisher, who retired after working 21 years for Cognis and its predecessors.
What's happening at Cognis isn't rare. The high cost of retiree health care is causing more and more companies to reduce or drop such coverage, a recent survey by the non-profit Kaiser Family Foundation concluded.
In 1988, 66 percent of all companies with 200 or more employees offered retiree health care. But the survey showed last year that percentage had dropped to 34 percent. Among companies with fewer than 200 workers, only about 5 percent offer retiree health care.
Only 25 percent of 272 Tristate companies responding offered retiree health insurance in a 2-year-old survey by the Employers Resource Center, a Bond Hill organization that offers human resources services businesses.
Of those offering retiree health care, 13 percent required that retirees pay 100 percent of the premiums.
Company: no choice
Health care is an emotional issue for retirees, said Brad Harris, Cognis' director of rewards management. But he said the company, which already requires active employees to contribute to their health care, had no choice but to implement cost-sharing for retirees in the face of sharply higher health-care costs.
We knew if we were going to continue offering health care to retirees, we were going to have to do something to slow down the growth of those costs, he said.
Under the changes, all Cognis retirees will have to pay a minimum of $25 a month for coverage, including a prescription coverage. That contribution will be indexed to the annual increase in medical care costs. In the past, some retirees paid nothing and others made small contributions.
For those over 65, the company adopted what is known as a Medicare carve-out plan, in which Medicare is their primary coverage. In the past, Cognis which traces its roots to Emery Industries, one of Cincinnati's oldest companies paid the 20 percent of medical bills not covered by Medicare. Now the retirees will have to buy a Medicare supplement for that coverage. The cost of that coverage increases as the retirees get older.
In a letter to retirees in June announcing the change, the company said it paid almost $5 million for retiree health benefits last year and expects health-care costs to rise at double-digit rates this year and next.
Hourly retirees, too, many of whom haven't previously paid health insurance premiums, are also being told that they'll have to pony up.
Ed Lutz, who retired last year after more than 36 years at the company, said the unexpected health-care costs are an additional burden on many retirees who took early retirement and reduced pensions in the belief their health care would be taken care of.
It's going to hurt, said Norma Cook of Fairfield, who retired from Cognis in 1991 after 17 years.
Ms. Cook, who gets by on a $235 monthly pension and Social Security, now faces monthly health insurance premiums of more than $100 a month.
They just raised my condo fees by $100 a month, and now this, she said.
Union lobbies for relief
Mr. Lutz, a former official of United Steel Workers of America Local 14340 at Cognis, is leading efforts to mobilize hourly retirees around the issue.
Last Tuesday, the retirees picketed outside the company's headquarters. Friday morning, they picketed on Fountain Square, and they plan future demonstrations at Cognis customer sites.
The union, which has filed two contract grievances over the change in insurance coverage, also held an information meeting for retirees Wednesday before an annual dinner that drew more than 60 retirees.
Mike Eggie, financial secretary for Local 14340, which represents about 330 active Cognis employees, said current employees feel they owe a debt to the retirees.
We wouldn't be working today without their efforts, he said.
The union, which has been pushing the retirees' case, says the company maintains the union doesn't represent the retirees.
I've tried to appeal to (management's) human side, without success, Mr. Eggie said.
Many of the retirees some of whom worked for the company for 40 years aren't able to pay this, he said.
The change in Cognis' retiree health-care plan doesn't include those who retired before May 1989, who the company says are about 25 percent of its retirees.
After that date, which marked the company's acquisition by Germany-based Henkel Corp., the insurance plan description was changed to leave open the possibility that retirees might have to contribute to their health care.
Despite the change, retirees, many of whom started working for the company when it was still owned by the Emery family, thought there was an understanding that the company would take care of their health costs.
I'm disappointed and feel in every sense betrayed, said Bob Bellstrom of Hyde Park, who retired in 1998 after 35 years.
Mr. Harris said Cognis is not unlike a lot of old-line manufacturers, such as the steel industry, that have high retiree legacy costs. For example, Cognis has about 1,100 retirees and 650 spouses of retirees and only 1,500 active employees.
This is something a lot of companies have experienced, he said. If you look at steel plants in the northern part of the state, you'll see those companies carry an enormous number of retirees compared to their active workers.
Change of ownership
The Cognis retirees say rising health costs aren't the only reason they're being asked to pay more.
In November, Henkel sold the company to a group headed by the investment firm Goldman Sachs, which says it plans to eventually sell the company in a public stock offering. The retirees say the health-care changes are part of cost-cutting to improve the company's balance sheet before a stock offering.
Mr. Harris said the cost sharing with retirees is inevitable no matter who owns the company. He said Henkel itself is implementing a similar program for its retirees.
Nobody has those kind of deep pockets anymore, he said.
He said even with the changes, Cognis retiree health care is still generous compared with what other companies provide. The company could have dropped retiree health care entirely as other companies have done, but chose not to.
We looked at a number of demographics and wanted to do what was fair, he said.
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