Tuesday, September 10, 2013

IBM Extend Health - How IBM saves BIG BUCKS

IBM spokes people are running around the country telling retirees that IBM is making this change because of the run away cost in health care and this change is meant to help retirees contain their health premium costs.  Really?  Really?

I've been trying to think of all the ways IBM will save money by this move to "help retirees" as they will no longer be providing services directly to 110,000 medicare eligible retirees.  As boomers become Medicare eligible they can throw even more people over the transom. 

IBM will likely be saving MILLIONS OF DOLLARS by reducing or eliminating:

  • The team that negotiated with private insurance companies or were working with other companies to provide unique IBM offerings such as Aetna Integration plans, IBM medical plans or CVS/Caremark prescription drug plans.  Wonder how many people they will be able to lay off.
  • People who answer the IBM Employee Service Center helpline.  The bulk of the questions that came into that helpline from older retirees had to be about the medical plans coverage and/or claim complaints.  Eliminating that workload means IBM won't need as many people to answer questions.  That service was probably outsourced - so less money goes to the outsource company. 
  • Cost overruns from the negotiated premium prices.  Retirees paid fixed premiums every month and the rest of the cost of the policies came from our subsidy pool.  The premium prices were established before we picked our choices.  There was likely a best case scenario where the subsidy pool would under run and a worst case scenario where the subsidy pool would overrun. Predicting that probably gets more difficult as more and more people became Medicare eligible. 
  • Pension deduction processing.  Our premiums were paid out of our pensions.  There was a workload associated with adjustments and life changing events such as when spouses die.
  • The cost of sending us materials every fall during open enrollment and handling the bump in helpline workload.
  • There are probably other costs that IBM will be able to eliminate but the biggest payback to IBM is there is a HIGH probability we will not spend the subsidy money. It is well known in the retail industry that people are very sloppy about claiming rebate money (http://www.investopedia.com/financial-edge/0810/how-mail-in-rebates-rip-you-off.aspx).  About 40% of the rebate money goes unclaimed.  Let's presume IBM retirees are better than the general population so if 30,000 retirees screw up the HRA claim process IBM will get back 30,000 x 3,000 or $90 MILLION DOLLARS.  Old people are particularly vulnerable about handling rebates and the HRA claim process couldn't be more confusing. Even if it is half that amount it is a lot of money!!!! 

The notion that we will be getting a better price deal with Extend Health is just ridiculous.  Extend Health is negotiating nothing with insurance companies.  As I said, they are nothing more than an insurance agent. 

Updated on 2/9/14 - I wrote this posting before we knew about the beneficiary change that required the retiree to take a benefit cut to provide survivor benefits.  My guess is retirees and survivors were lasting longer than first predicted by the actuaries so the trust fund for the benefit was running low.  There'd be no way IBM would do the right thing and pump more funds into the trust to compensate so, instead, they trimmed the benefit. 


  1. Does anyone understand the unholy alliance between EH and IBM? Why are we limited to purchasing plans through EH? IBM certainly could have hired a company to administer these funds even if retirees had the freedom to buy any plan we wanted.????

    1. I think IBM has a long relationship with Towers Watson. That was the company that helped IBM try to implement the cash balance pension plan. It's a guess that IBM pays a lower administration fee to Towers Watson because TW (aka Extend Health - which was acquired by TW) gets commissions from selling the insurance and not all insurance companies use agents. Forcing us to buy through TW guarantees them commissions. My guess is TW negotiated it that way.

  2. My guess is you are right. A little frustrating though, when it is presented as if TW (EH) is here to help the retirees. Actually backed into a corner now and forced to buy plans we do not want so we can access the IBM donation.

    1. When I wrote this I did not know they would also mess with the subsidy by lowering it if you want to cover your spouse after you die. That is so pathetic because the amount of money involved is a pittance. It is just such a dispicable act ... rather sociopathic behavior for a corporation that used to be the pillar of the community.

  3. Yes, we have to decide that too. My husband is the retiree and is 79. I am 61. So do we take all the help we can get now (bird in the hand) or gamble that the subsidy will still be available if/when I am widowed and Medicare eligible. Lovely.