DEARBORN - Since our recent articles in Blue Oval Connect, we have received a few more questions and would like to provide you accurate benefit information in response. We hope these FAQs will help our salaried retirees better understand their Ford healthcare benefits and the Company's effort to maintain competitive healthcare benefits for our retirees.
Q1: Did Ford use the ERRP (Early Retiree Reinsurance Program) funds that came out of the Patient Protection and Accountable Care Act in 2010 for 2012 pre-Medicare retiree insurance premiums?
A1: Yes, Ford has used as much of the available ERRP funds as possible to offset the costs of pre-Medicare retiree insurance. However, the approach used at Ford is different than some other companies. Ford used the anticipated receipt of the ERRP funds to keep the costs of pre-Medicare retiree costs much lower in 2011 than they otherwise would have been. For example, the Ford Medical Plan (FMP-PPO) had no monthly premium for pre-Medicare retirees in 2011 – a very low cost relative to other retiree plans and even lower than active employees in 2011. Had Ford not considered ERRP monies for which we applied under ERRP, retiree rates for 2011 would have been much higher – we would not have been able to offer the Ford Medical Plan with no monthly premium as we did.
In order to actually receive the ERRP funds from the federal government, we continue to go through an extremely detailed and complex application process to demonstrate that we in fact used the money to offset rates for pre-Medicare retirees. We have received a good portion of the money for which we applied so far from the federal government, and are working through obtaining the remainder.
Q2. It looks like Chrysler and General Motors used the Early Retiree Reinsurance Program (ERRP) funds to offset insurance rate increases in 2012, but Ford did not. Can you explain?
A2. While we cannot speculate how other companies have used the ERRP funds they received, we did announce in late 2011 and again in early 2012 that no applications for funds in 2012 are being accepted by the federal government under the ERRP program. As described in the answer to Question 1 above, Ford used the anticipated receipt of the ERRP funds to keep the costs of pre-Medicare retiree costs much lower in 2011 than they otherwise would have been.
Q3. How did Ford calculate the salaried pre-Medicare retiree’s monthly insurance premiums for 2012 and are they calculated differently than the calculations used for salaried active employees?
A3: The process to establish monthly premiums for salaried active employees is basically the same as the process used for retiree rates, with a few differences. First, the Company’s cost for retiree health insurance continues to be capped at 2006 levels. And, up until the 2012 benefit year, that cap had not been reached, thanks to the ERRP funds mentioned in the question above. However, with the 2012 rates provided to Ford from our health care insurance carriers, we have now reached the 2006 cap level, which means that cost increases from our insurance carriers and health care providers pass through to retirees.
Q4. Why are monthly premiums for active employees different than monthly premiums for retirees?
A4. There are two other pieces of information that are important to understand. First, the cost of retiree health care is higher than that of active employees, resulting in rates from our carriers and providers for retiree plans being higher than for active employees (retirees simply use more health care and are more costly as a group). Second, the Company has a very high “take rate” for the health insurance we provide our pre-Medicare retirees (i.e., almost all of our retirees take advantage of the Ford plan; it is simply a good benefit when compared with non-Ford alternatives).
Q5. Why does Ford only provide its salaried retirees over age 65 (Medicare-eligible) $1,800 if you are single and $3,600 if you are married, for healthcare costs while at least one other local auto company provides$3,600 per year for every single and widowed salaried retiree in his or her pension check?
A5. Ford’s use of the $1,800 (single) and $3,600 (family) Health Reimbursement Arrangement (HRA) for its Medicare-eligible retirees and surviving spouses, in our view, is a better approach than simply adding this value to a pension check. HRAs are tax efficient, raising the overall value of this benefit versus being added to a pension check and taxed. We posed the question to a group of retirees about a year ago, “Would you prefer the tax efficient $3,600 for you and your spouse or that same amount added to your pension check?” The clear majority preferred the tax efficient approach.