|Health care an ailing condition in the U.S.
Companies generally are not setting aside enough money to pay for the benefits that they've promised, but these promises are kind of flimsy anyway because most are not carved-in-stone contractual obligations. The companies represented in the Standard & Poor's 500, for example, had a funding shortfall of $321 billion for estimated retiree health-care obligations in January, up 12 percent from the previous year, according to an S&P report released last month.
One reason: Few tax incentives are in place to motivate companies to fund them more adequately. Accounting rules that go in effect next year will force companies to highlight the shortfalls more prominently on their balance sheets rather than bury them in footnotes, and this will move company managements toward cutting them off altogether. The ongoing problem of escalating health-care costs will further influence their decisions.
According to a recent survey by Watson Wyatt of 164 companies, 14 percent plan to stop offering health-care benefits to future retirees while 6 percent will stop doing so for current retirees. Meanwhile, future retirees of two-thirds of those companies will have to pony up more money if they want access to their plans.
Some large companies still pick up the tab for premiums, but their numbers are steadily declining. The trend is toward tightening eligibility requirements, raising the retiree's share of premiums and co-pays, and imposing caps on the amount the employer is willing to pay.
The nation's largest provider of health-care benefits, General Motors, spent $5.3 billion last year on health care for its 1.1 million employees, retirees and their dependents, according to GM's CEO Rick Wagoner Jr., and more than half of benefit recipients are 60 years old and up. Wagoner recently appeared before the Senate's Special Committee on Aging. Though he didn't push for a national health-care system, he did express support for a number of legislative reforms designed to contain health-care costs.
Medicare slated to go broke soon
The national health-care system that's already in place for retirees faces a huge shortfall of its own. Its unfunded liability is estimated to be $32.1 trillion, and the Medicare Part A trust fund is scheduled to become insolvent by 2018. That's just around the corner.
How will lawmakers address this problem? "It is generally agreed that public policy change will be needed to address the Medicare budget shortfall, and that Congress is more likely to reduce Medicare benefits than to enhance them," the EBRI study says. Two possible solutions would be to raise the age at which retirees would be eligible for Medicare or increase out-of-pocket costs to beneficiaries. Either scenario would mean that the study's estimates on projected health-care costs are too low.
The pressures of progress compound the problem. Rising life expectancies and advances in medical technologies contribute to higher costs. It amounts to a prescription for financial disaster that will affect Americans at both national and individual levels.
OK, let's take another three yoga breaths here. If we do everything we can to stay healthy, maybe we can avoid having to save so much money for future health-care costs, right? The problem is, it's not always completely under your control, so you never know.