Angry Retirees Battle Big Business to Keep Their Health Care : Medicine: Companies argue that their own financial well-being is endangered by the rising cost of benefits.

By SHARON COHEN

Dec. 4, 1994 12 AM PT

ASSOCIATED PRESS

DES MOINES, Iowa — After nearly 26 years, two heart attacks and a stroke, Harry Ellis retired from his factory job in March, too sick to work anymore. He clung to one oasis of security--his medical insurance.

Then, last summer, he learned he could lose that. Pirelli Armstrong Tire Corp. announced it was terminating health benefits for retirees, saying rising medical costs had become intolerable and jeopardized the company’s future.

Harry Ellis now fears his own future.

“When I worked here, I believed it straight out they’ll take care of you for the rest of your life,” said the 56-year-old former welder, his voice rising, his face flushed pink with anger beneath his pastel-print railroad cap. “I thought all I have to do is bury myself. Now I might not have nothing.”

Ellis is not alone in his anger; he is at the center of one of the most rancorous labor-management disputes of the 1990s.

The debate reverberates in workplaces across America as more companies--heavyweights like General Motors, Unisys and Navistar, among them--slash or eliminate medical health insurance for more retirees.

Faced with spiraling health care costs and growing numbers of retirees, companies argue their own financial health is at stake. Changes in accounting rules have forced them to subtract the projected cost of retiree health benefits from profits--a drain on the bottom line.

Retirees, meanwhile, say they were promised protection, sometimes explicitly in contracts, and it’s illegal to abandon them at this vulnerable time in their lives.

So they go to court.

The Pirelli Armstrong case is in the hands of a federal judge in Nashville, Tenn.; he will decide by Dec. 15 whether the company has the right to cut off benefits to 3,200 retirees and their families.

They claim they’re being betrayed because they accepted smaller wage increases in lieu of health care insurance and were told in exit interviews they would be protected until death--an intent they insist also was clear in their contract.

“These people were promised lifetime benefits,” said Chuck Armstrong, an attorney for the United Rubber Workers Union, which filed the suit. “Many of them are uninsurable. Many of them are living on marginal incomes and they couldn’t pay for benefits even if they could get them.”

“It’s like when you buy a life insurance policy and then the insurance company comes along and says it can’t afford to pay,” said Hank Grant, 72, a Des Moines retiree.

But at trial, Pirelli Armstrong argued that there is no written agreement providing lifetime coverage, that it has the right to adjust or terminate benefits and that it should not be held responsible for commitments made decades ago.

The company also cites its shaky financial status: An audit showed a $61.1-million loss in 1993; a letter to retirees said it anticipates losing an additional $55 million this year, including retirees’ medical costs.

“If our company continues to lose money, then it will reach a point where it will fail and then it won’t be able to pay (any) health benefits or salaries,” said Bob Newman, Pirelli Armstrong’s public relations director.

Newman said retirees’ health insurance is a generous package that cost the company $30 million last year, amounting to more than $7,000 per family.

A 1993 survey of companies by Foster Higgins & Co., a benefits consulting firm, found the average cost of a retiree’s health benefits was $2,735, though it was almost twice that for those under age 65.

Medical care for retirees “is a real drag on employers,” said Deborah Chollet, associate director of the Alpha Center, a Washington, D.C.-based health policy think tank. “It represents a fixed cost, no matter how they manage the work force or production.”

At least 13 million retirees over age 55 receive health benefits from former employers, she said, and more than a third of those--about 4.5 million--may be especially at risk of losing coverage because companies wrote escape clauses into their benefit plans.

But understandably, every time a company has tried to wield the ax, it has met with resistance:

* In February, a judge said General Motors must reinstate full coverage and pay back benefits for 50,000 salaried early retirees, who filed suit in 1989. That ruling has been appealed.

Raymond Fay, an attorney for the GM retirees, said that in these kinds of cases involving union contracts, retirees have won about half the time; for salaried retirees, companies have been mostly victorious.

* Unisys, the computer maker, is phasing out retirees medical care by 1996, a move estimated to save $100 million annually; that’s still in litigation.

* Navistar settled a class-action lawsuit with retirees with a plan that cut their medical benefits but gave them stock equal to a third of the company, a spokeswoman for the truck maker said.

By contrast, Pirelli Armstrong is a small company, a division of Pirelli SpA of Italy, which purchased Armstrong Tire Co. in 1988. It has plants in California and Tennessee. The case also affects retirees from plants that closed in Connecticut and Mississippi.

The company has offered a settlement to its retirees, but Armstrong, the attorney, said it would create a hardship for many: A couple with a $750 monthly pension, he said, would end up paying a third of that for medical care.

Titan Tire Corp., which bought the Iowa plant from Pirelli Armstrong this summer, also offered the Des Moines retirees $1,000 annually for five years.

“There ain’t no way in the world I’ll take it. I don’t think it’s fair,” said Ellis, a blunt-spoken man, one of 21 children of a coal miner.

Ellis said he and his wife, Patty, who has asthma and lung problems, have prescription bills alone of $740 a month.

Dolly Coan, whose husband, Charles, died of cancer in October, says she depends, in part, on his $400 pension to help support a 24-year-old mildly retarded daughter, who has cerebral palsy.

“If I have to put out $500-$600 in health insurance, where would that leave me?” the 61-year-widow asked.

Harry Ellis says if he loses his insurance, he’ll have to find another job, even though his doctor advised him not to work.

“My job was probably the most important thing in my life,” he said. “I also thought if you work hard and take care of your family, you’d be taken care of . . . I don’t believe that anymore.”