3M Eliminates Medicare-Eligible Coverage Beginning in 2013

Change coincides with, cites ObamaCare “as a factor”

Texas Insider Report: AUSTIN, Texas – In another pre-election blow to Democrats, Principal Financial Group said it will exit the health insurance marketplace in which it covers some 840,000 lives.  The Wall Street Journal also reports this morning that 3M “informed retirees & workers it will stop offering  group health insurance to retirees not old enough for Medicare by 2015, citing the federal health overhaul as a factor.”      

3M’s decision to eliminate coverage for Medicare-eligibles beginning in 2013 exactly coincides with a provision in the law scheduled to take effect that year, which eliminates the tax deductibility of a federal subsidy provided to companies that cover their retirees’ prescription drug expenses. 

Even more concerning, analysts say, is if more insurers are likely to follow Principal’s lead as they try to meet the new rules  requiring plans to spend at least 80 cents of every dollar they collect in premiums on the welfare of their customers.

“It’s just going to drive the little guys out,” said Robert Laszewski, a health policy consultant in Alexandria, Va.

The memo to 3M employees notes that “health care reform has made it more difficult for employers like 3M to provide a plan that will remain competitive.”

Specifically, 3M’s Medicare-eligible retirees will be converted to a health reimbursement arrangement (HRA) in 2013, and retirees not yet eligible for Medicare will be converted into an HRA beginning in 2015, once the insurance Exchanges and subsidies are scheduled to come online in 2014. 

Earlier this year 3M took a $90 million write-down as a result of this provision – which, as predicted, is leading companies to modify their coverage choices.  In August, the Medicare actuaries predicted that nearly 6 million retirees would lose their current employer-sponsored drug coverage as a result of this provision.

This type of change – converting a defined-benefit plan into a defined-contribution model – has been advocated by some in the policy community, as it may give retirees more flexibility in their coverage options.  However, to the extent that employers place more of their workers on insurance Exchanges to receive federal subsidies, such plans would obviously increase the federal deficit – in addition to breaking the President’s promise that those who like their current coverage will be able to keep it.

It will also be interesting in the coming days to see the responses from Democrats regarding this development, particularly given what a Journal Editorial last week characterized as “political intimidation” against McDonald’s when a leaked internal memo showed the company apparently wavering on whether to continue offering coverage to their employees. 

Sen. Jay Rockefeller sent a letter late last week seeking detailed information from McDonald’s insurer “in order to understand the costs and benefits of the insurance products you are selling to McDonald’s employees.”

Political intimidation or not, companies have been given strong economic incentives – higher taxes for those employers offering retiree drug coverage, and a federal government willing to subsidize insurance for all low-income employees – to modify or drop their coverage entirely. 

In the long run, those incentives will be extremely difficult for successful firms to ignore, despite the short term political hue and cry from elected officials.

Principal Financial Group to exit health insurance marketplace

Both the New York Times and the Wall Street Journal ran stories Friday morning covering the exit from the health insurance marketplace of Principal Financial Group, which currently covers about 840,000 lives. 

All these individuals will have to change their current coverage in the coming months as their policies expire.

More troubling however are the concluding paragraphs of the Times piece, which suggests that Principal’s decision may be one of many made by smaller carriers to exit the health insurance marketplace thanks to the health care law:

More insurers are likely to follow Principal’s lead, especially as they try to meet the new rules that require plans to spend at least 80 cents of every dollar they collect in premiums on the welfare of their customers. Many of the big insurers have been lobbying federal officials to forestall or drastically alter those rules.

“It’s just going to drive the little guys out,” said Robert Laszewski, a health policy consultant in Alexandria, Va. Smaller players like Principal in states like Iowa, Missouri and elsewhere will not be able to compete because they do not have the resources and economies of scale of players like UnitedHealth, which is among the nation’s largest health insurers.

Mr. Laszewski is worried that the ensuing concentration is likely to lead to higher prices because large players will no longer face the competition from the smaller plans. “It’s just the UnitedHealthcare full employment act,” he said.

Democrats claimed that their unpopular health care law would protect Americans from abuses by “Big Insurance.”  But if the overhaul leads to industry consolidation – and higher prices as a result – how effective can it be?


  1. Ahhh, yes, let’s hear it for corporate cost cutting for most all ….except of course for excessive compensation for the most senior management at some firms (3M was not among those paying the most senior management excesive comp, at least when I was an employee). But US corporations continue to squeeze cost out of middle management in myriad ways (e.g. outsourcing, shifting operations outside the US, cost shifting the cost of health care benefits). we have a lack of demand now in the US and prospects of slow growth which stem from a) 4 million private sector US jobs being exported (you’ve no doubt heard the warnings: jobless recovery & slower growth in the USA, and b) middle & low income Americans, those to the 80th percentile becoming poorer owing to corporate cost cutting: leaner and meaner. Fact is as any astute high school economics student can grasp, demand, which is people, counts more than supply, which most essentially capital…..because…. capitalism does not aim at need….the poor here and around the world have plenty of unmet needs….capitalism is about meeting unmet demand, which requires ability to afford. Most American have a lot more to worry about than just health care benefits for early retirees being eliminated. Owed to Republicans, supported by the US Chamber of Commerce and the excessive political money of the health care and the FIRE industries (financial, insurance & real estate) lobbies, In the past 2 decades we have shifted income from everyone else to the top 20% highest income & wealtiest: the top 1/10 of 1% now have 9% of US wealth, the top 1% have 22%, unprecedented excess concentration of wealth & power compared to any other advanced democratic country in the world: 2x that of GB the next most concentrated. If you support Republicans and the US Chamber you support “those who have the gold make the rules”; and ultimately that means the end of democracy and effective impoverishment for most. We’ve seen health care cost increase at 2-3x the average rate of cost increase of all other industries except the FIRE industries, 8% per year for the past 20 years while the share of GDP for both health care and the FIRE industies has doubled….which means ….most Americans standard of living has been and is being eroded paying for health care and explotation by financials ervices companies. I’m just flabbergasted that so many do not get that over and over again unbridled, “free market capitalism” ….which is license for anything goes ….has enriched so few at the expense of the many. Episodic booms & busts (business cycles) in the USA are endemic to unbridled (greed is a virtue) capitalism, and 3 have inflicted such misery and disaster on the USA that most Americans, all but the few, have repeatedly teetered on the brink of serfdom (progressively joining the 45 million without health insurance now, with the Republican aim to roll back not just health care for the poorest but privatize Social Security & Medicare thus eliminating the safety nets for most Americans….as if 401-Ks are better than defined benefit pensions and people who are not among the wealthiest 20% will be able to save when also faced with …relentless corporate cost cuttiing! (Widely esteemed economists have long recognized destructive business cycles are endemic to capitalism,…but…. had there not there been non-conventional wisdom reform laws & anti-monoply power) law was 1st applied by Theodore Roosevelt in 1911 and the FED was created in 1913, and the New Deal reforms inclusive of the creation of the SEC and Glass Steagall Act passed in 1933 (which prohibited consolidated commercial banking with too risky investemnt banking), we…the USA could have been a back the future country already, meaning in effect a servatude to corporate robber baron totalitarian country from then on….just as the risk is again now to the USA…then as now…too few jobs, widespread unemployment, very low compensation paid to all but the most senior management & ownership, concentration of power & wealth among too big to fail and/or monopoly – oligopoly price power companies (again today, health care & FIRE industries banks). So vote Republican if you are for the end of democracy, those with the gold & power make the rules, anything goes capitalism enriching fewer & fewer while most Americans, and ever more and more in the middle and upper middle are too limited to grasp that their standard of living and thus ultimately their true opportunity for life, liberty & the pursuit of happiness is again being eroded as it has been over the past 2 decades, just as it was prior to 1907 and 1929. Truly, when Republicans win their aim to effectively privatize Social Security & Medicare you better be very wealthy becuase you’ll have a lot more to complain and worry about than just companies eliminating health care benefits for early retirees.

    And last words for the obtuse: we have…we’ve experienced massive socialism and massive redistribution of income in this country: it comes from protectionism of monoply price powers in health care and the more than 150% of GDP bailouts the FIRE industries orchestrated in 2008 as a result of oh so limited Americans not getting that…… the few who have the wealth & power are making the rules…..again…. at the expense of most all Americans (real democracy). Wake up! I’ve condensed the true facts for you: from recent & current and past history. Unless you are really wealthy you are so destructive to America & most Americans when you vote Republican. As Winston Churchill once said “except for all other economic systerms, capitalism is the worst”. Free market capitalism fails democracy when economic power becomes too big & too concentrated….as Jefferson and Jackson knew was especially dangerous with regard to banks. President Obama was correct in calling for a unique brand of fairly regulated American capitalism….but he falls short in the courage to take on Republicans and enforce real competion via the anti-trust laws not ever increasing concentration of wealth & power in too big to fail but not too big to harm employees and rip the faces off (exploit) consumers..

  2. As a recently retired 3M employee, 3M had been hinting for the past several years that they might discontinue offering medical coverage for employees who retire before being Medicare elgible. Therefore this was not a great surprise to me. They blamed it on the new health care reform bill but I think that’s just a convenient excuse for implementing another cost savings program that they have wanted to do for some time. It definitely takes the political heat off them.

  3. The “bean counters” have taken over and the innovators are stymied by the strict adherence to the new risk adverse culture.

  4. This is just another ploy by 3M to take whatever they can from employees. Everyone thinks 3M is a great company to work for, but let me tell you, after 30 years of being a faithful, and I might add fruitful contributor to their bottom line. I feel they have screwed every employee that has ever worked for them. They have lied and cheatedus repeatedly over those 30 years, and this is just one more example of how 3M cares only about the bottom line, and not any of their employees. Except of course it’s executives.

  5. This article may be deliberately misleading in the case of the first sentence. The Principle group is selling it’s health insurance business to another carrier and their press release to that effect indicated clearly that they were not taking this action as a result of Health Reform.

    However, in this article the author sneaks in a reference to that change in business plan by Principle under the heading of accounts of another company which is, apparently, modifying it’s coverage due to Health Reform. Gentlemen, that’s obfuscation.

    Furthermore, the article fails to mention that Health Reform has recently implemented provisions that will make it easier for those who are near retirement age but still working to obtain insurance outside of the group health environment, where it might be cheaper.

    The article goes on to suggest that DHHS threatened or intimidated McDonalds. Nothing could be more transparently false. McDonald’s offers it’s employees one of the crappiest medical plans on earth (a mini-med) with considerable cost if an employee accepted the best coverage available under that plan. At that cost (through payroll deduction) the employees could, in general, obtain a comprehensive major medical plan in the private market which would likely be some of the best coverage available in Texas.

    Regrettably, the McDonalds workforce may be almost uniformly uninformed (actually, most people are) about the elements of a plan that make it worth owning or not. So, they glibly sign up for the McDonalds plan thinking they’re getting a great deal on group health insurance. Nothing could be further from the truth.

    They’re being taken advantage of by McDonalds. That’s because McDonalds gets the kudos for offering medical insurance when they’re likely not contributing a single dime to that coverage as is customary in employer-sponsored health plans.

    Overall, this article is extremely biased and is footloose and fancy-free with the facts. I’m sure it would be well-suited to those who ignorantly raid against Health Reform.


    A state licensed health insurance agent

  6. The socialist Obamas plan is to socialize the U.S. and everything is going as planned. We are becoming a socialist state quickly, everyone will be dependent on the government. Just think what he can do in the next two years if he has a Democratic majority.

  7. A Dumas has hit the nail on the head. Now that we’ve released the 600 lb gorilla it can eventually do anything it wants–at our peril!! It seems our only hope is to find this thing unconstitutional and have it removed as law–I don’t think we will ever have the horses to repeal it–though I hope we do.

  8. In the ongoing “you ain’t seen nothing yet” saga of ObamaCare, it would seem that everything is going exactly to plan.

    As any government endevour, the goal is total control. Of course, it cannot be done in one grand gesture – public outrage would be difficult to ignore. So it must be done gradually, in small, precise steps.

    The first step is to pass legislation so that the decent, caring folks in Washington can offer financial assistance – just to help those who need help, of course. This is called getting the foot in the door, and, once accomplished, a new and permanent entitlement is added to the budget.

    Once the true costs become apparent and the outcry becomes great enough, the second step is to place blame. Not on government ineptitude, fraud, and waste, but on “evil corporations” who obviously put profit above all else at the expense of taxpayer funded government assistance.

    This re-directed outrage becomes their justification to establish phony “consumer protection” laws, which only make things worse. And once these measures heap cost upon cost, the government-run entity is established, disguised with the benign purpose of market competition.

    But as one private entity after another fold to the lopsided competition of taxpayer subsidies, our “choice” narrows, until eventually only the public entity survives. The takeover is now complete, and the next target can be selected.

    The passage of Obamacare was just an intermediate step. The takeover of the health care industry began years ago with the introduction of Medicare. Remember, the first step in any good con is getting that foot in the door.

  9. So now we get to be abused by big corporations and big government…ain’t life grand! I have had United Health Insurance and it was a total nightmare…so bad that the company found another provider for our insurance after one year. Thank Goodness.

  10. McDonalds was the first salvo fired at Obama’s handlers. Principal is the second… Who is next? Other Major Corporations and Insurance Carriers as they react to Health Care Reform and First Dollar?
    The administration served a Cease and Desist Order on Blue Cross for supposedly mentioning Health Care Reform and doing comparisons to his handlers Health Care Reform Legislation…. The insurance Industry has always done comparisions…What is the Administration afraid of and what is next from this Administration?
    Do they care at all about future generations??? Not by their current actions.

  11. I CANNOT believe there is anyone over 26 and not on the government dole that could NOT BE COMPLETELY OUTRAGED at this administration and the politicians that shoved this down our throat.
    ABSOLUTELY everyone that voted for this nightmare should be voted out and then have their GREAT HEALTH CARE benefits taken away and be placed on this plan and have to pay the premiums themselves.

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