Fighting the fight
Like a huge cloud appearing on the horizon, the aging of the baby boom generation is moving closer to shore, carrying with it a storm of financial consequences. Employee benefit plan managers are bracing themselves and their employees for the effects of the aging of the largest demographic group in the nation’s history. “We have been planning for this population increase,” says Scott Streator, director of health care for the Ohio Public Employee Retirement System (OPERS). “We’re the largest plan in Ohio. If anyone will feel it, we will.”
Plan administrators are aligning their benefits programs to better meet the expected demands of older employees as they reach what will be a decades-long retirement. The changes are designed to help early retirees manage their expenses until Medicare is available at age 65 and to curb the rising costs of employers’ health care obligations.
Many programs are focusing on encouraging employees to save for post-retirement medical expenses, trying to control costs through wellness programs for older employees and disease management programs that help them receive the right treatment for their illnesses. Some employers also are focusing on the generation following the baby boomers, whose saving and health habits have assumed different patterns from their older cohorts. “We need to try new approaches and show that they work,” says Dan Stewart, assistant vice chancellor for employee benefits and services at the University of Texas in Austin and a past president of the Richmond, Ky.-based State and Local Government Benefits Association. “These are taxpayer dollars [going to employee benefits],” he says. “We can’t make a mistake. We have to be accountable.”
Living longer but not healthier
Although the 80 million baby boomers are expected to live longer than their parents, they are not as healthy as the smiling retirees bicycling in fast-paced television ads would suggest. In fact, studies indicate that baby boomers are not even as healthy as their parents.
According to the federally funded University of Michigan Health and Retirement Study, the nation’s leading resource for data on the health and economic circumstances of aging Americans, there are some early warning signs about baby boomers’ health. The 14-year study tracks 22,000 U.S. adults over age 50 every two years as they move toward retirement.
As reported in the Washington Post, when researchers examined the first wave of boomers to enter the study — 5,030 adults born between 1948 and 1953 — they found that the group reported poorer health than groups born between 1936 and 1941 and between 1942 and 1947.
According to the study, baby boomers were much less likely than their predecessors to describe their health as “excellent” or “very good” and were more likely to report having difficulty with routine activities, such as walking several blocks or lifting 10 pounds. They also were more likely to report pain, drinking and psychiatric problems, and chronic problems, such as high blood pressure, high cholesterol and diabetes. “We’re seeing some very powerful evidence point to these findings,” says Mark Hayward, a professor of sociology at the University of Texas in Austin. “The trend seems to be that people are not as healthy as they approach retirement as they were in older generations. It’s very disturbing.”
Although the Health and Retirement study is based on self-reports, researchers indicate that it often reflects actual trends in the general population. While many consider the findings very reliable, others have raised questions about their accuracy, suspecting baby boomers have higher expectations for their health or may be more health conscious than their parents. But, if that were the case, the findings would lead to earlier diagnosis of problems that may actually reduce health issues later in life. The actual trends will not be known for years, but other surveys by British researchers and the National Center for Health Statistics’ National Health Interview Survey have indicated results similar to the Health and Retirement Study.
Creative cost cutting
Whether baby boomers are actually less healthy than their parents may be debatable, but indisputably they are getting older and edging toward retirement. Stewart notes that the group of baby boomers that are now 50 to 65 years old is the most expensive for employee benefit programs to maintain because they have more health issues and are not yet eligible for Medicare.
OPERS leaders began developing a comprehensive health care preservation plan in 2003 to control costs without affecting quality, according to Streator. “We wanted to eliminate unnecessary costs without putting the burden on the back of our members,” he says.
The Ohio health plan, now totaling almost $13 billion in assets, pays for health care services for its 200,000 retirees as part of its defined benefit pension plan. The preservation plan, which went into effect in January, is designed to make employees share responsibility for the program and maintain its long-term solvency. As one step, OPERS changed one brand name drug on its medications list to a generic and expects to save an estimated $13 million. “We can’t just write checks and watch the draining of our plan,” he says. “We need to be in partnership with our members.”
OPERS also has established Retiree Medical Accounts (RMA) that share savings with members, says Doug Foust, assistant director. Under the new health care program, eligible members receive a monthly allowance to apply toward the monthly premium for their medical/pharmacy coverage. If the member chooses options that exceed the monthly allowance, the difference between the allowance and the cost is deducted from his or her monthly benefit check.
As an incentive to take a cheaper option, though, if the monthly allowance exceeds the cost of the coverage options selected, the allowance excess is deposited into an RMA, which can be used to offset deductibles and other uncovered health care costs. “This allows them to put money aside, so they can take care of themselves,” Streator says. A winter 2006 survey of the International City/County Management Association (ICMA) membership by Philadelphia-based CIGNA HealthCare found that 30 percent of the respondents are likely to consider similar arrangements in the next five years.
In Waukesha County, Wis., the emphasis in benefits coverage for baby boomers has turned to planning initiatives and wellness programs, says Peter Hans, employee benefits administrator. County retirees have access to the employee health plan, but the county does not pay their premiums. “People find it financially hard to retire before 65 [when Medicare becomes effective],” he says.
To help, the county contributes to a medical care account for its 1,400 employees that can be used to offset health-related expenses after the employees retire. Because the program does not promise a benefit, it is not affected by the new accounting rules that are forcing many public employers for the first time to set aside in their annual operating budgets the costs of their retirement medical care benefits. “We think these accounts help them hurdle the obstacle to retirement,” he says. “It’s a mechanism to help the transition in the high pre-Medicare years.”
The county also is emphasizing wellness and fitness programs that can cut costs by preventing illness, Hans says. “We are focusing on lifestyle-related health costs,” he says. “We want people to know how to make the right lifestyle choices so they don’t have problems down the road.”
In addition, the county has adopted a patient advocate program to help participants manage their health care better. In particular, the county is concentrating on employees with asthma and diabetes, which often lead to even more serious problems if left untreated.
Preparing for Gen X
Harris County, Texas, benefits administrators are focusing not only on the issues with the aging of its large baby boom workforce, but also the very different needs of the employees that are following just behind. The Generation X group is less concerned about retirement and needs to be taught the value of retirement saving. “There is an opportunity to save, but generations differ in values,” says David Kester, director of human resources and risk management for the 14,000-employee workforce. “The next generation seems to spend more than they save today. So we are trying to help them understand that need.”
For baby boomers, the county has increased its categories of disease management from six to 26, which provides more services to help people receive the right treatment from the health care system. The county also has recognized that older employees often are caring for their children and for their elderly parents at the same time. That has led to increased services through the Employee Assistance Program, which guides employees to counseling to help them through stressful interactions and social services to assist in caretaking.
Harris County also has expanded assistance for financial planning, giving pre-retirees the tools and information they need to plan for retirement and ensure that they have sufficient resources. “People are going to live longer,” Kester says. “There is a need for extended resources.”
And, with people living longer, there is a greater likelihood that long-term care may be involved, with its considerable cost implications. As a result, long-term care insurance has drawn some interest from county leaders, Kester says, but there has been very little experience in the public sector with how it works and who will benefit from the coverage. Employers, like OPERS, may provide access to a long-term care insurance plan in the future, but in general there have been few takers.
Without taking steps to control costs, public employee benefit plans will find themselves in increasingly difficult situations, Stewart says. “We have to educate people about health care in general,” he says. “It’s a difficult issue to manage.”
Robert Barkin is a Bethesda, Md.-based freelance writer.