When Art Milona retired from electrical distributor Graybar at age 52, he took a job with a manufacturers' rep agency and planned to work eight more years before retiring “for good.” But the soaring cost of health insurance has altered those plans. Today, the 58-year-old plans to work until he's at least 65—long enough for Medicare to kick in and reduce his out-of-pocket expenses.

Milona is not alone. Millions of baby boomers are finding it impossible to retire early because of the high cost of health insurance, and distribution professionals are no exception. Many, like Milona, counted on long-held policies by their former employer stating that their health plan would cover them at a reasonable cost until they became eligible for Medicare. But as employers look for ways to reduce health care costs, retirees are increasingly taking a hit.

“The trend in retiree health care benefits is to reduce or eliminate them,” says Fred Mendelsohn, an attorney with Burke, Warren, MacKay & Seritella P.C. in Chicago, who works with distributors. He adds that long-held policies about lifetime coverage are meaningless if they don't contain “really powerful language” that guarantees such benefits.

According to research from the Kaiser Family Foundation and the Health Research Education Trust, one-third of large companies (those with 200 or more employees) offered health benefits to retired employees in 2007 compared to 40 percent in 1998 and 66 percent in 1988. Most of those companies offered health benefits to retirees under age 65, according to the Kaiser/HRET 2007 Annual Survey of Employer Health Benefits.

And for those companies still offering medical insurance to retirees, Mendelsohn says the costs are rising dramatically. Milona says his premiums have tripled since 2006, when he paid around $250 a month for a Graybar-sponsored plan that covers him and his wife. This year, the premium for the same policy rose to $798 a month, and Milona says he expects another increase next year.

Human resources expert Nancye Combs, who also works with distributors, says Milona's experience is becoming more typical as employers face the fact that they can no longer offer the generous health benefits they touted to baby boomers when they were hired 30 years ago. For many companies, those benefits included lifetime medical coverage.

“As the cost of medical care escalated and employers began to look for cost controls to pay premiums, they didn't want to overburden their active employees,” Combs explains. “So, eliminating coverage for retirees became an obvious way to further control costs.”

Combs says the situation reminds her of a pre-1990s phenomenon referred to as “job-lock” in the HR profession. Before Congress passed the Health Insurance Portability and Accountability Act in 1996, employees with serious health problems (or with dependents that had health problems) were often “locked in” to their jobs because they were unlikely to be covered under a new employer due to their preexisting condition. HIPAA, as it is known, limits the restrictions that a group health plan can place on benefits for preexisting conditions, making it easier for employees to change employers.

“Today, we're back to job-locking, though for a different reason,” Combs says. “Employees are saying, 'I can't retire because I can't get enough health insurance.”

Milona was an Indianapolis branch manager for Graybar, retiring in 2001 after spending 28 years with the company. Graybar has an early retirement benefits package that includes medical coverage and a prescription drug plan along with pension and profit-sharing benefits. The medical coverage was a key factor in Milona's decision to retire early, but he says he didn't count on paying nearly $1,000 a month for coverage. When he retired in 2001, his policy cost him just $83 a month.

“When I hired in to Graybar in 1973, the plan was that the employee would never pay medical insurance until [age] 65 and any employee dependent would only pay what an active employee would pay,” Milona says. “At some point in the early '90s they changed it. They would still provide medical insurance for the employee if they retired early … but it would not exceed what an active employee would pay, for the employee and the dependent.”

But that policy has changed as well, he says.

“Now … nobody expected it to go up this much.,” Milona says.

Graybar does not discuss the details of its benefits plans publicly, according to vice president of human resources Beverly Propst. But Kathy Mazzarella, senior vice president of sales and marketing for Graybar's CommData group, says the actual benefits Graybar provides early retirees have not changed in recent years.  Mazzarella was Graybar’s senior vice president, human resources and strategic planning until last spring.

Propst and Mazzarella say Graybar, like all employers, struggles with the rising cost of providing health insurance to employees and retirees, but they would not discuss steps the company has taken to control those costs. Mazzarella, who's been with Graybar for more than 28 years, emphasized that the company's early retirement package is comprehensive and that Graybar is committed to providing it.

“There's been no discussion to discontinue [the plan],” she says, pointing to its medical, pension and profit-sharing aspects. “As a long-term employee, to me, the entire benefit package is what to focus on. If I qualify pre-65, [I get] the medical package, pension and a profit-sharing plan. We're very proud of that.”

Indeed, such plans are not commonplace in distribution. According to the Kaiser/HRET study, firms in retail and wholesale industries are less likely than firms in other industries—such as government and finance—to offer retiree health benefits.

But there's still the issue of rising premiums. Combs says she advises companies to phase out benefits rather than end them abruptly, and says that may be why some employers are asking retirees to shoulder more of the burden for their health costs. And while that makes sense from a business perspective, the effect on retirees is frustration and disappointment.

“When you lose something … there's a grieving process. When we address employee benefits, especially retiree benefits, we lose relationships,” Combs explains. “Our retiree internalizes that action as 'You don't care about me anymore.' And that is normal. They feel betrayed.”

Combs says that's just one part of a two-part response to the issue, however, noting that most retirees understand that health costs are rising and that employers have no choice but to raise premiums.

“This is a contemporary issue that is, indeed, a trend,” Combs says. “However, I don't think we should blame the employer. … My employer clients are grieving over this. It's not easy for them to deny their retirees this [benefit]. It's a lose-lose for everybody.”

But that's little comfort to Colorado Springs resident Phil Sargent. Like Milona, Sargent retired early from Graybar and has seen his health insurance premiums skyrocket—from $78 a month in 2002 to $800 a month today for a policy that covers him and his wife.

The 62-year-old says he'll have to find a less expensive policy if his insurance reaches $1,000 a month, which he fears may happen in 2009. But there's one problem: His wife has a preexisting condition that will be excluded from a new policy.

“If you have a decision to shut the doors or take care of your retirees … you've got to do something to keep the company afloat, I understand that,” Sargent says. “Whether it's fair or not fair, I don't know. But to me, [changing the policy] is not ethical.

“We're between a rock and a hard spot, and I just can't come up with the money any more.”