When a company wishes to attain a desired result and knows the process is going to be unpopular to those it affects, they resort to something called "outsourcing solutions." 

In 2003, State Farm entered into one of its several partnering agreements. Whenever "strategic allies" get involved, it usually means agents selling a product through the ally at a severely reduced commission. The remaining portion of the full commission goes to the strategic ally. This ally was Aon Corp., reportedly the largest insurance brokerage firm in the country. Aon was partnered to expand State Farm's commercial insurance offerings, such as professional liability, employment practices liability directors and officers liability for service providers at the time.

In July 2010, Aon Corp. bought Hewitt Associates for $4.9 billion, (a premium of 41 percent over the stock value of the company at the time) and was criticized for the over payment by Wall Street. Hewitt Associates is a human resources company. Now they are merged into one company, Aon Hewitt. Together they sell insurance, they do consulting, they do human resources, and more importantly they do outsourcing solutions.  The latter is a specialization Hewitt Associates brought to the merger. Together they are identified in this first brochure as, "a leading benefits administration firm." A more accurate identification would be, "the largest insurance brokerage firm in the country."

These State Farm Group Health Care Plan changes began with a six-page brochure mailed to the 27,000 retirees (19,000 employee-associates and 8,000 independent contractor agents) early in 2011, entitled Changes to Your State Farm Retiree Group Medical Benefits. Essentially the message was State Farm's "comprehensive retiree package," subsequently identified as "medical and life benefits," was costing them, "six times higher than that of our nearest competitor." (The nearest competitor was not identified.) We have heard since that Allstate did this same thing to its retirees. What follows is what we have gleaned from the mailings.

The significant date for the changes taking place is January 1, 2012. Putting it as simply and factually as possible, effective on that date, all Medicare Eligible retirees will be eliminated from the State Farm Group Medical PPO Plan. In its place State Farm will be providing "support." This support will come in the fashion of outsourcing solutions. State Farm will create a Health Reimbursement Account (HRA) for each retiree. In 2012, State Farm will place $200 per month for the retiree and $200 per month for the spouse into this account. Then comes the other aspect of the support, the Aon Hewitt outsourcing solution. The Aon Hewitt people, are alternately identified in this first brochure as "Benefits Advisors" or "Senior Advisors." They are LICENSED to sell insurance —in this case, medical insurance.

These Benefits Advisors or Senior Advisors from Aon Hewitt will contact retirees later this year and advise which Medicare Supplement, Medicare Advantage or Medicare Prescription Drug Plans best suit their personal health needs and their budgets. In our view, this advising might more accurately be described as SELLING INSURANCE.

Further wording in this first brochure, in our opinion, would make Aon Hewitt your personal medical insurance agent or broker.

The best part comes when the retiree MUST pay the insurance premiums on the plans recommended by Aon Hewitt, to Aon Hewitt. Then Aon Hewitt will process your request for reimbursement from your Health Reimbursement Account. Although the word reimbursement is used in the brochure, it never actually says the retiree must pay the health insurance plan premiums out of pocket first.

It sounds convoluted. But, that is the only way State Farm could set it up so when they start reducing their monthly contribution toward the retiree's health insurance costs (which could be much sooner than you think), you won't find out how much of the cost remains out-of-your-pocket until after you've paid it and the request for reimbursement comes back short. The brochure says, "the contribution State Farm makes toward your health care expenses likely will not grow at the same pace as inflation. Over time, you may bear a larger share of your health care costs."

The clarification for those retirees who will not be Medicare eligible on January 1, 2012 is, "You will likely see fewer State Farm Group PPO Plan deductible options available to you in 2012."

Associates and agents who are over age 50 as of January 1. 2012, upon their retirement will experience the same retiree medical changes as current retirees.

For associates and agents who are under age 50 as of January 1, 2012, upon retirement there will be no contributions for the health care costs of their spouse or dependents and no contribution toward the group life coverage.

Newly hired associates and agents beginning January 1, 2012 will have, "access to retiree medical coverage, but will be responsible for the entire cost, and will have no group life coverage at their retirement."

The obvious question is, "WHY IS STATE FARM DOING THIS?"

The brochure says changes over the years have made Medicare Supplement, Medical Advantage and Medicare Prescription Drug Plans a more competitive option for retirees. And they, "anticipate most retirees will be able to find a plan that is similar to what they have today at a competitive cost."

Until January 1, 2011, we had a Group Major Medical Plan with a lifetime maximum of $2 million per insured individual. This was replaced by a Group Medical PPO because, under the Affordable Health Care Act,  there can no longer be lifetime or annual dollar limits.

The second mailing was an 11-page brochure entitled Creating Your Path . . . A Guide to Medicare Coordination Services and included a cover letter from Rod Hoff, a State Farm Asst. V.P. Human Resources. This repeats some information provided in the first brochure but, additionally, includes projected cost comparisons for Medicare Supplements, Part D Prescription Drug Plan, and for the first time, the one, two, three-step procedure which starts with, "You pay the premium by check or automatic withdrawal."

Then there is a nuance which immediately came to our attention. That is the Aon Hewitt people changing from "Benefits Advisors" or "Senior Advisors" into "Senior Educators." State Farm also announced retirees needed to register for retiree meetings to take place in June and July.

Upon attempting to register for a morning session, we learned that it had been over subscribed and there would be an afternoon session of the same presentation, which we registered to attend. After making the same presentation in the morning, one would expect the presenters and their techies would have everything under control but, unfortunately, that was not the case. The State Farm Home Office representative, a young man named Ron, couldn't get the techies to eliminate the feedback on the microphone. There was an overhead visual which matched yet another brochure, and Ron just read right from the matching brochure, as they went from screen to screen until he came to page six, where one of the bullet points read, "Employs licensed and certified insurance brokers" — are salaried - No compensation based on steering individuals to specific carriers and/or plans for you!  Here, Ron substituted the words "Senior Educators" for "insurance brokers" as he read the page. This wording apparently caused too many pointed questions in the morning session. A careful reading of the words in the brochure does not make it clear there will be no commissions paid to the insurance brokers for SELLING whichever plan, as opposed to just compensation for "steering." David Raw, the representative from Aon Hewitt, was extremely well versed and responded factually to questions posed by the audience. Unfortunately, the techies could not get the video, which was part of the morning program, to work for the afternoon session either.

All the fun begins in September, with the contact from Aon Hewitt to begin the 2012 Annual Enrollment process. This will continue through October and November.

The most significant two points we have to communicate about this arrangement are that it comes with a six-month period of guaranteed eligibility, and no exclusions for pre-existing conditions so long as you are coming from the group health plan just prior to your enrollment.

The reimbursement from the Health Reimbursement Account would also apply if retirees purchase the Medicare Supplement products through their State Farm agent, but it would be up to the retirees and their agents to process the requests for reimbursement. Also State Farm contributions to your Health Reimbursement Account will be not be reported as income for retired employees, but they will be reported as income to the retired agent because the independent contractor does not benefit from the tax exclusion for company-paid medical benefits.

Here are the financial facts about WHY retirees are being eliminated from the State Farm Group Health Plan.

Let's say you have a State Farm Group Health Plan which includes more than 100,000 employee associates and independent contractor agents. If you remove 27,000 retires from the group; retirees who, because of advanced age and declining health may well be providing a disproportionate claim frequency and claim severity under the plan, you eliminate their morbidity impact on the overall group loss experience and hence, the group premiums.

This not only removes their premium contribution costs from the Group Plan but, more importantly, with their disproportionate claim costs removed, the remaining premiums for the near 100,000 remaining in the plan would be significantly reduced. We are reminded of State Farm sending a letter to the then entire employee-agency force on December 10, 1953, telling them that effective January 1, 1954 they would all be independent contractors, thereby eliminating State Farm's expense of paying the half share of the Social Security FICA taxes on all agent's earnings.

So even though putting $200 per month in a Health Reimbursement Account for the retiree and spouse for the 2012 year for the 27,000 currently retired would amount to about $129.6 million in company contributions to their individual health care costs, can you imagine the cost savings in company contributions when the group premiums are adjusted downward due to the elimination of the high frequency and high severity claim experience of the retirees?

One closing point for Medicare eligible retirees. Keep in mind your Medicare premiums may also be going up because they are subject to adjustment according to your prior year's income. The more income you have, the more you pay for your Medicare coverage.