Retiree Health Plans:

Health Benefits Not Secure Under Employer-Based System

HRD-93-125: Published: Jul 9, 1993. Publicly Released: Jul 9, 1993.

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Pursuant to a congressional request, GAO provided information on private-sector employers' reductions of retiree health benefits, focusing on the: (1) type of benefit reductions; (2) impact of Financial Accounting Standard (FAS) 106; and (3) federal courts' basis for allowing employers to reduce retiree health benefits.

GAO found that: (1) employers are controlling retiree health benefit costs by increasing premium contributions, deductibles, and copayments, modifying eligibility requirements, and using defined contribution plans; (2) shifting costs to retirees could make medical services unaffordable for some retirees; (3) a small percentage of employers have terminated retiree health plans, which could leave early retirees without health insurance; (4) although FAS 106 significantly impacts companies' financial statements by reducing income and stockholder equity and increasing liability, it does not directly impact their cash flows; (5) the Employee Retirement Income Security Act allows employers to modify their retiree health plans for current and future retirees; (6) federal courts have upheld employers' rights to modify or terminate health plans if they reserved the right to do so; and (7) retiree health benefits are not secure under the employer-based system, which may significantly affect health care reform.

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