Some employers have eliminated their retired employee health benefits in favor of private health insurance exchanges. The idea is sold to retirees as a better deal with more choices. What they don’t make clear is that they have also changed the employer contribution from a defined benefit to a defined contribution. That simply means that the employer contribution toward the premium will no longer rise automatically with the increased premiums each year.
The new defined employer contribution may initially be set at the current level, say 80% of the total premium. However, thereafter the employer contribution is detached from premium increases. The employer independently determines how much, if any, the contribution will increase. The result is that over time the employer contribution will decrease from say 80% of premium to 50-60% with the retiree picking up the difference. This is how the employer saves money.
Enter Medicare. The Ryan plan calls for the use of vouchers given to each beneficiary to buy private coverage. Think of the voucher as the employer defined contribution except the government determines when and how much the voucher amount increases.
You can figure out where this is going.