AEP’s retiree medical benefit to change for current, future employees

As part of the recent overall review of AEP’s benefit program, the company has announced several important changes to its retiree medical program for current and future employees.

“I know that employees and retirees are very interested in the findings of the recent benefits review, especially as it relates to our retiree medical benefit,” said Nick Akins, AEP president and CEO. “We’re now ready to share our findings and the changes that we’ll make going forward.”

The benchmarking conducted by Aon Hewitt clearly indicated the need to make changes to the benefit to better align AEP’s offering with the programs offered by its peer companies. The findings indicate that AEP’s current retiree medical program is considerably more generous than the programs provided by other companies, and as a result, adds considerably to the company’s overall benefit costs. In fact, the data indicates that the value of AEP’s retiree medical coverage for new hires is more than three times greater than the average for the 13 utilities in our peer industry group. The data suggests that without a change, AEP’s current plan costs will become unsustainable as the rate of inflation for medical care rises.

“We recognize that current retirees entered their retirement years with an expectation about the level of benefits that would be available to them and the cost associated with those benefits,” Akins explained. “So, at the current time, we have no plans to change the Retiree Medical Benefit for current retirees.”

In an effort to more closely align our benefit offerings with our peer companies and competitors, AEP will be making the following changes to retiree medical coverage costs for current and future employees whose retirement date is after January 1, 2013:

For current employees whose retirement date is after January 1, 2013, retiree medical coverage costs will change in the following ways:

• A fixed “cap” or maximum will be placed on the amount of the company’s contribution for retiree medical insurance coverage for both under age 65 retirees and age 65 and over retirees. The cap will have the effect of increasing retiree contribution amounts for coverage once the cap amount is reached. While current projections suggest the average per-person claims amount upon which the company’s contribution is based will not reach the cap amount ($3,800 for retirees age 65 and over and $11,500 for retirees under age 65) for approximately three years, the ultimate date will depend on actual retiree claims cost and inflation levels. The lower cap amount for age 65 and over retirees ($3,800) reflects the fact that Medicare provides primary coverage for retirees age 65 and over.
• There will be a change to the cost-sharing formula used to determine company contributions for employees who retire after January 1, 2013, and are under age 65 at retirement. The new formula will be based on the medical claims cost of this specific under-65 retiree group as opposed to the current formula that blends the claims cost of this group with the claims cost of active employees. The change will more accurately reflect the retiree’s share of the true cost of the benefits afforded this group.
• Please note that the above changes will not impact how much the plan would pay out in claims in a given year for individual retirees, but rather will cap how much the company will contribute towards the cost of retiree medical insurance coverage. The medical plan does not impose maximums on either annual or lifetime medical claims.

The current plan is for new employees who join AEP on or after January 1, 2014, to no longer be eligible for retiree medical coverage provided by AEP.

Akins noted that retiree medical benefits for current employees whose retirement date is effective on or before January 1, 2013, will not be impacted by the changes described above. “We recognize that these changes may cause retirement-eligible employees to consider whether they wish to retire in December to preserve their access to the current plan provisions,” said Akins.

While the changes described above do not impact current employees whose retirement date is on or before January 1, 2013, or current retirees, it’s important to be aware that the company has the discretion to make additional retiree medical changes in the future which could impact retirees. Among other things, potential future changes could include imposing a fixed cap on the company’s contribution that would apply to all retirees.

 Akins stressed that the changes are designed to transform and reposition AEP to successfully compete and survive in a rapidly changing business environment.

 “AEP continues to offer a total rewards package that is among the best in our industry,” he said. “This change in our benefit offerings will also help ensure that we can sustain that claim in the face of dramatic changes overtaking our company and the utility industry in general.”