Retirement Heist: how companies plunder and profit from the nest eggs of American workers

Months later, the retirees were notified that they had been dropped from Medicare. Why? Because TRW had automatically enrolled them in a Medicare Advantage plan. These are health plans run by private insurers, who receive a government subsidy to provide the equivalent of Medicare. The benefits differ slightly—Medicare Advantage plans might provide low-cost benefits, such as gym memberships and discounts on hearing aids, but as a trade-off the plans limit the retirees’ choice of hospitals and doctors. TRW called it a “better” plan, and it was—for TRW. The plan saved the company $95,000 a month.

McClow, who looks like a cross between Sean Connery and the Archbishop of Canterbury and has the slightly exasperated air of a middle-school teacher dealing with unruly teens, took the company to court. He pointed out that the settlement didn’t allow the company to change the plan. TRW filed a motion to say it hadn’t changed the plan—it had only changed the administrator. The magistrate agreed.

McClow filed an appeal, and in December 2009, a federal judge vacated the magistrate’s decision because, under federal law, people must be given the choice to remain on Medicare. TRW then filed a motion for reconsideration. This lingered on the judge’s docket for eight months, until McClow filed a motion to get the judge to make a decision.

Finally, in November 2010, the retirees’ prior coverage was restored. Still, TRW and its lawyers came out ahead: The several hundred thousand dollars it paid in legal fees was more than offset by the $1.7 million in savings it enjoyed while the retirees were on the Medicare Advantage Plan.¹⁷

A few years earlier, in 2008, TRW had initiated a different cost-savings tack when it eliminated coverage for certain categories of drugs. John Galloway learned that TRW was no longer paying for a prescription drug that his wife, Pansy, takes for acid reflux when, instead of a co-pay of $3, he got a bill for $103. According to TRW, the drug wasn’t medically necessary; Tums would do just as well. Maybe for healthy people, but not for someone confined to a bed in a nursing home. McClow filed a motion for an injunction; the settlement hadn’t agreed to allow TRW to establish its own formulary.

In October 2010, TRW began trying another cost-savings tack: It sent the dwindling number of retirees yet another death audit. The “Life Verification Declaration” required the retirees to provide a notarized affidavit, the first page of their federal income tax returns, and a marriage license if they had coverage for a spouse. To acquire the needed documentation, the verification form advised retirees to contact the county clerks in the locations of the marriages and births and the local Social Security Administration. And for all those Web-savvy octogenarians, it provided “Helpful Web sites,” such as Michigan.gov.

Retirees were instructed to return all the required documents by November 29. “If you do not, TRW will automatically terminate coverage for you and your dependants as of December 31, 2010.” It also warned them about the “Possible Consequences of Insurance Fraud,” which would include having to reimburse TRW for the cost of services the ineligible person receives. “Research has shown that ineligible members left on a healthcare plan can contribute thousands of dollars to raising healthcare costs that impact everyone,” the letter said.

Audits of regular health plans might save company money by turning up ineligible dependents, such as grown children or ex-spouses. But with retiree health coverage, the only way a person can become ineligible is by dying. If that’s the case, his name turns up within two months on the Social Security death register, which benefits administrators parse monthly to make sure they discontinue sending pension checks and drop the deceased retiree from its plan.

McClow considered the death audit to be a cynical trick to strip retirees of their coverage: “The real savings comes from terminating the retirees who do not respond,” which, in fact, one-third of the retirees failed to do. McClow asked TRW for a list of the one hundred or so Kelsey-Hayes retirees it was prepared to drop because it hadn’t received their affidavits. One by one, McClow looked up each retiree’s name in the Social Security death index. All but one was alive. The trick was to locate the rest and get them to turn in their paperwork.

He began by calling those he had numbers for, sometimes letting the phone ring twenty times to give them time to totter to the phone. “By the end of the conversation, some of them couldn’t remember what I was calling about. ‘What was it you wanted?’ they’d say.” Equipped with printouts from MapQuest, McClow went door to door in some of the desolate neighborhoods of Detroit, where some of the retirees were too nervous to come to the door. In one case, he was able to get a neighbor to persuade one elderly woman to let McClow pass the papers through the bars on her door.