Walgreens cuts longtime well being profit for retired staff .
Maria Alessio, left, retired from Walgreens in fall of 2018 anticipating the pharmacy chain to assist her pay for medical insurance. Walgreens minimize the funds for her and about 550 different early retirees shortly after Alessio retired.
Supply: Maria Alessio
Maria Alessio cherished working for Walgreens Boots Alliance, particularly due to the pharmacy chain’s advantages.
She determined to retire in final fall at age 61 as a result of she might not take standing all day filling prescriptions. She and her fellow pharmacists traveled to Italy to have fun. Then, days after she returned, she acquired a letter from Walgreens saying it could not subsidize Alessio and her household’s medical insurance underneath new restrictions on advantages for retired staff, efficient subsequent yr.
“I didn’t think that would happen,” stated Alessio, who hadn’t taken the cuts into consideration in her retirement planning. She at the moment pays $27,600 yearly for medical insurance for herself, her husband and son, about $10,800 of which was lined by Walgreens. “I was totally shocked.”
Walgreens stated in a September letter reviewed by CNBC that it could not subsidize medical advantages for its former staff who hadn’t turned 64 by March 31, citing “rising and unpredictable healthcare costs.”
For Alessio, now 62, the cuts have raised uncertainty. Her son, who will flip 26 in September, purchased his personal medical insurance this month, and her husband will likely be eligible for Medicare subsequent yr, which ought to assist convey her whole premium down. However she doesn’t but know the way dropping the subsidies will have an effect on her monetary state of affairs.
Some 550 retirees obtain the subsidies from Walgreens earlier than they flip 65 and are eligible for Medicare. Below the age restrictions specified by the September letter, they will not obtain the funds, which differ in quantity based mostly on staff’ years of service.
Neither will staff who had been eligible for the profit upon retirement underneath the previous guidelines, which made it out there to staff who had turned 50 by Might 2017 and had labored on the firm 20 years. (Staff nonetheless wanted to be at the least 55 with at the least 25 years of service on the time of retirement to obtain the profit).
Walgreens tightened the necessities for the subsidies previously, eliminating eligibility for brand spanking new hires and youthful staff, however till final fall, the corporate had stopped in need of touching the funds of retirees who had been already receiving them.
“Pre-65, I do think it’s unusual to take people who already have a subsidy right now and eliminate that subsidy,” stated Derek Guyton, a companion within the well being and advantages enterprise at Mercer, owned by Marsh & McLennan. “What’s more common is you tell people way ahead of time you’re not going to have this subsidy when you get to 55 or what have you. That obviously has happened a lot and continues to happen, but taking it away from people, some employers consider that almost an employment contract.”
Walgreens has stated it’s engaged on a “lower-cost, unsubsidized retiree health program starting in 2020,” based on an October letter it despatched to retirees. It has but to offer particulars on its plan.
Walgreens spokesman Phil Caruso stated in an e-mail Friday that the corporate reviewed a number of things earlier than deciding to vary eligibility necessities for the subsidies.
“We are continuing to work toward a new retiree healthcare program for 2020, paying particular attention to the transition impact for those with current subsidized coverage,” he stated. “We will continue to update our retirees.”
The pharmacy chain employed roughly 354,000 individuals as of August, based on its annual report.
An indication of the instances
Walgreens’ transfer to chop the funds comes at a time when U.S. firms are looking for methods to curb rising well being prices and trim retirement advantages to scale back obligations.
Firms began providing retiree well being advantages within the 1970s once they had been an affordable option to recruit and retain staff, stated Paul Fronstin, director of the well being analysis and training program on the Worker Profit Analysis Institute. New laws within the 1990s pressured firms to submit the commitments as liabilities on their monetary statements, main firms to rethink them, particularly as health-care prices soared.
They’ve accomplished so in quite a lot of methods. As an illustration, firms equivalent to Basic Electrical and IBM moved retirees off group medical insurance plans and onto non-public exchanges, or marketplaces with a number of plan choices that exterior advantages corporations handle. This helps employers cap their health-care bills.
Walgreens went even additional in 2013, when it was considered one of greater than a dozen firms to maneuver energetic staff onto the Aon Hewitt Company Well being Alternate.
Firms which have restricted the subsidies they provide to help with medical advantages have typically centered their cuts on new hires, youthful staff or retirees who’re Medicare eligible, advantages specialists say.
In keeping with a 2018 survey of 554 employers by insurance coverage dealer Willis Towers Watson, 38% provided some sort of monetary subsidy to assist present retired staff pay for medical advantages earlier than they’re eligible for Medicare at age 65. Thirty p.c prolonged the profit to present staff, and simply 19% made it out there for brand spanking new hires.
“I can’t think of a company that (eliminated subsidies for current retirees),” stated John Barkett, director of coverage affairs at Willis Towers Watson. “It gets back to the promise they made to their retirees.” He added that employers “still want to offer their commitment, they just want to do it at a better value.”
Certainly, Walgreens retirees say they trusted the subsidies would not go away and have discovered the cuts exhausting to justify.
“If Walgreens was a struggling company… I could see it,” stated Chris Knupp, 61, who retired from Walgreens in 2016 as a senior director within the insurance coverage division. He and his spouse will lose his subsidies underneath the brand new guidelines. “However this can be a firm who reported $5 billion of earnings final yr and has posted income for I do not know what number of years. “
The brand new guidelines are additionally altering retirement timelines of some present staff, together with Ed Meyerink, 52, of Bluffton, South Carolina. Meyerink has labored at Walgreens for 27 years and deliberate to retire when he turned 55. He and his spouse purchased an RV so they may see the Grand Canyon, spend the summer time in California and perhaps spend a while with their son who lives in Boca Raton, Florida.
With out Walgreens subsidizing their medical insurance, he plans to maintain working as a pharmacist till he is sufficiently old for Medicare. They may nonetheless take the RV for weekend journeys, however they’re scrapping their different itineraries.
“Zero does me absolutely no good,” Meyerink stated of the subsidies. “It means no traveling. None of the plans we have are going to come to fruition.”
Regardless of its income, the pharmacy chain is underneath strain from buyers to chop prices.
Pharmacies are getting paid much less to fill prescriptions as insurers squeeze them. Costs of the medication they’re dishing out aren’t growing on the identical charges they used to as drugmakers face strain from lawmakers. Folks additionally aren’t shopping for as a lot sweet and cleaning soap at drugstores, as an alternative shopping for comfort gadgets on-line on websites like Amazon.
The corporate earlier this yr ramped up cost-cutting after CEO Stefano Pessina known as its second-fiscal quarter essentially the most tough quarter since Walgreens acquired Boots Alliance in 2015. Walgreens now expects to avoid wasting $1.5 billion yearly by 2022, executives informed Wall Avenue analysts on a convention name in April.
In reducing the subsidies for early retirees, Walgreens decreased its profit plan obligation by $201 million in 2018 from the earlier yr, the corporate stated in its annual report.
“It’s kind of odd, the timing,” stated Brian Tanquilut, senior vp of health-care companies fairness analysis at Jefferies. “I can’t think of any other companies who are doing this. It feels like a lot of this was done years ago, so for them to do this now shows they’re under pressure and are forced to look at their cost savings options now.”
Paul Fischer labored at Walgreens as a pharmacist for 29 years earlier than retiring in 2011 when he turned 55. Now 62, Fischer and his spouse will lose their medical insurance subsidies subsequent yr.
Supply: Paul Fischer
To make certain, Walgreens has elevated some advantages for its present staff despite the fact that it’s reducing the retiree subsidies. As an illustration, final yr it invested $100 million to spice up pay for greater than 100,000 retailer staff.
‘Just about chaos’
Walgreens hosted two convention calls that lasted greater than an hour every in November to discipline individuals’s questions. Paul Fischer, a 62-year-old retiree from Ormond Seaside, Florida, described the decision as “pretty much chaos” with individuals telling Walgreens executives how annoyed they had been to lose advantages they had been already receiving.
Robert Montes, who spent most of his 34 years at Walgreens in compensation and advantages, and his colleagues met with Walgreens executives later that month. Of their hour-long assembly at Walgreens’ Deerfield, Illinois, headquarters, they requested how the corporate might say it didn’t have cash for the subsidies, why it stated prices had been unpredictable and why it thought eliminating subsidies would remedy issues about retirees’ prices.
“They were nice, polite, cordial,” Montes stated. “They said you’ve given us some good comments but in essence, they’ve held onto their original game plan and maintained radio silence throughout all this and have not implemented any change management to their relative plan. We sit here frustrated by their silence at this point.”
Caruso, the Walgreens spokesman, stated within the e-mail to CNBC that “members of our executive management met with retiree representatives to listen to their concerns, engage in dialogue, and inform them that we are continuing to work toward a new healthcare program for 2020.”
Walgreens informed retirees it could share extra particulars someday this yr. Retirees say they’ve but to listen to from the corporate. Till then, they’re making an attempt to determine what to do about their earlier spending plans.
Fischer and his spouse, Susan, purchased land in Jasper, Georgia, the place they wished to construct a house when she retired in January. Additionally they thought-about shopping for property in Texas. They wished to journey to Eire and Italy. These plans are on maintain whereas they await a solution.
The couple put aside money to pay for his or her medical insurance. Now, they don’t seem to be positive whether or not it is going to be sufficient, stated Fischer, who labored at Walgreens for 29 years and retired as a pharmacy supervisor. They could must promote a few of their investments to cowl the misplaced subsidies.
“It all goes back to how could a financially sound company take away benefits from people who already retired who can’t go back,” he stated.