Forecasting health costs, an uncertain art at
best, has become the subject of a vigorous debate between employers
and the accounting profession's rule-making board.
Under accounting rules expected to take effect for 1992
financial statements, companies must report their promises to pay
for health care for future retirees.
The value of the promises, which the companies will have to
subtract from reported income, will depend in large part on how fast
health costs are expected to rise.
The Financial Accounting Standards Board, a private rule-making
agency, says the calculations must be based on a company's recent
experience with growing health costs, known as the health-cost
But employers and their accountants are calling for a different
basis for the forecasts.
The nation's spending on health care surged 10.7 percent last
year, and government economists say if the double-digit growth
continues, medical spending will climb to $999 billion in 1995 and
$1.5 trillion in 2000, up from $618 billion in 1989.
But many economists and corporate financial executives insist
the steep upward trend cannot go on.
Health spending is already about 12 percent of the gross
national product, and they believe employers or the government will
find ways to prevent the percentage from rising off the charts.
The General Accounting Office estimated last year employers'
future obligations for retiree health benefits were $227 billion in
In a concession to business, a proposed change that would have
required each company to estimate its total obligations, which could
have exceeded the entire assets of some companies, has been dropped.
But enormous costs would still have to be included on financial
reports under the Accounting Standard Board's rules - especially by
companies with many older employees and retirees and extensive
benefits protected by labor contracts.
Ford Motor Co., for example, spent $416 million last year on
health care for retirees and their dependents, compared with $386
million in 1988 and $341 million in 1987.
Under the new rules, Ford's charges against income will rise
But Arthur G. Fitzgerald, Ford's manager of financial reporting,
says it would be unrealistic to base the long-range projections on
the recent double-digit increases. And many financial executives
``We would be stuck with a charge that we do not believe will
really happen,'' said Paul B. …