Northrop Grumman changing retiree health benefits

After a dozen years, John Bruns knew what to expect from his Northrop Grumman retiree benefits: A medical plan for him and his wife.

Last month, he received a letter in the mail that shocked him. Northrop Grumman was changing its retiree medical plan for those former employees eligible for Medicare, the federal insurance program for those 65 years and older.

Instead of company coverage, employees will use a broker to choose from a variety of Medicare supplemental options.

Northrop Grumman -- one of Maryland largest private employers and the largest in Anne Arundel County -- is partnering with a private, third-party Medicare supplemental insurance broker called Towers Watson's OneExchange to help its retirees pick out a plan that's best for them.

A letter sent last month to retirees cites recent legislation and developments in the health insurance industry as the impetus for this change effective Aug. 1. But it's a change that's not unprecedented. Rather, the global security company will now align with the majority of large employers.

In 2013, about 28 percent of companies with 200 or more employees offering health benefits also provided retiree coverage. This percentage has generally decreased over the years, as 34 percent of large firms offered retiree health plans in 2006 compared with the 66 percent that did so in 1988, according to a Kaiser Family Foundation Report last August.

And of the large firms offering retiree health benefits, the majority give this coverage to early retirees under 65; however, only two-thirds also provide retiree health benefits to Medicare- age retirees. These percentages have remained fairly stable over time, the report states.

Private-sector employers are not required to provide retirees with health benefits, according to the U.S. Department of Labor website. And for those that do, there's no provision in the law prohibiting the company from cutting or eliminating such benefits.

The motivation behind Northrop Grumman's change was not to cut costs but to offer "more choice, and, in many cases, better value," the letter states.

This sort of change doesn't have a one-size-fits-all cost to the retiree. It depends on what the company's plan was and what Medicare plans they choose, according to Tina Herrero-Backe, coordinator of the State Health Insurance Assistance Program at the Carroll County Bureau of Aging and Disabilities.

She's seen retired employers from two other companies recently walk into her office asking for advice after their former employers had made changes to retiree health coverage, she said.

Towers Watson's OneExchange, the broker for Northrop Grumman's retired employees, is affiliated with more than 90 carriers nationwide, according to the Northrop Grumman letter. The letter indicates they are not a public federal or state exchange, but rather a broker-adviser service that will help the retiree understand the Medicare supplemental insurance options.

"We believe our retirees over 65 will find that the newly available plans and rates typically provide a broader range of options to fit their health and financial needs, potentially saving them money," Randy Belote III, strategic communications vice president, wrote in an email.

Additionally, some employees receive subsidies for their retiree medical coverage -- a practice the company ended for most employees hired on or after July 1, 2003.

Bruns, a resident of Carroll County, retired from Northrop Grumman in 2002, just two months shy of his 40-year mark. That means he was receiving a subsidy, which will now be in the form of tax- free credits in a new Retirement Health Reimbursement Arrangement. These credits can be used in a variety of ways: To pay for individual Medicare supplemental prescription drug, dental, vision or Medicare Part B premiums, the letter states.

Last week, Bruns attended a company-sponsored session explaining just what the cancellation meant, and afterward, he said the new offerings "looked good on the surface."

But until he talks with a broker and decides the plan right for him and his wife, it's unclear if he will be paying more or less out of pocket for health insurance and prescription drugs.

"We're up in the air right now," Bruns said.