IBM Moves Retirees to Insurance Exchange As Costs Rise

International Business Machines Corp. (IBM), faced with rising health care costs for retirees, says it will move them to a health exchange where they may have cheaper plan options.

The move affects about 110,000 Medicare-eligible retirees, Doug Shelton, an IBM spokesman, said by telephone. The company has chosen the Extend Health exchange by Towers Watson, the country’s largest private Medicare exchange, to provide more options for prescription drug, dental and vision care, the Armonk, New York-based company said in a statement e-mailed.

IBM’s move is the latest in a string of large changes that organizations have made to counter rising health costs. In August, United Parcel Service Inc. (UPS) decided to drop health benefits for 15,000 of its workers’ spouses, while Michigan Governor Rick Snyder tried to reduce costs by moving municipal retirees to exchanges.

“This transition provides more choice and flexibility at equal or better costs to our retirees,” IBM said in the statement. “While some retirees may be skeptical today, studies show that the majority of people who are presented the concept of an exchange are skeptical at first, but once they understand the options available to them through these exchanges, they have a more positive outlook.”

Bigger Beneficiary Pool

IBM had projected that with its current plans, costs for retirees would triple by 2020. Most of that would affect retirees’ premiums and out-of-pocket costs.

IBM said the new arrangement puts the retirees in a bigger pool of beneficiaries, spreading risk and lowering cost.

Reuters reported the change yesterday.

“IBM didn’t make this change to save money — it does not reduce our costs,” Shelton said, noting that IBM’s subsidies were capped in the 1990s.

IBM has been holding briefing meetings with groups of retirees to answer questions about the transition. A meeting in San Jose, California, on Sept. 4 drew 1,300 retirees, the company said.

The company has made other moves to lessen its costs for current employees. In the second quarter, IBM spent $1 billion to restructure its workforce, cutting more than 3,300 employees in the U.S. and Canada, according to Alliance@IBM, an employee group. It also required U.S. hardware division employees to take a week off with one-third of the pay.

IBM doesn’t disclose the number of employees by country or by division. The company’s total workforce was 434,246 as of Dec. 31.

Source: Bloomberg