Rolls Royce health-care at Northrop Grumman…

Back during the great health-care legislation debate of 2009-2010, we heard a lot about “Cadillac health-care plans,” and we’ve even seen a few here on footnoted (at Goldman Sachs and elsewhere). But last week, defense contractor Northrop Grumman (NOC) disclosed what looks to us like a Rolls Royce health-care plan — and true to the mystique of those legendary automobiles, it’s available only to a select few executives.

What may be most striking about Northrop Grumman’s elite health-care plan, however, is that it’s actually getting better this year, unlike just about any other health-care plan we can think of — especially others ultimately funded by the U.S. government. Uncle Sam, after all, provided $32.1 billion of Northrop Grumman’s $34.8 billion in revenue last year, according to the company’s 10-K (see p. 27).

Officially, this gem of a policy is called the “Legacy Officers Plan,” an innocuous name picked when the previously-styled “Executive Health Plan” was closed to new participants on July 1, 2009. Helpfully, the company filed a summary of the plan both for the fiscal year that just ended, and for the coming year, with its 10-Q on July 27.

So while last year’s benefits included a $2 million lifetime maximum, the new version of the plan instead imposes “No Lifetime Maximums for essential medical, prescription drug or mental health benefits.”

The company seems concerned about its top executives’ hearing as well. Previously, the plan paid no more than $500 a year toward hearing-aid purchases — better than many health plans for the rank-and-file (which often pay nothing), but still not as good as Northrop Grumman executives get today: “Up to two hearing aids per person, per plan year”. Given that a top-quality hearing aid can cost $2,000 or more, that’s not a bad improvement. Or maybe company executives have just been spending too much time around those liquid-fuel booster rockets Northrop Grumman Aerospace is developing.

Keep in mind, this was a sweet plan to begin with: no deductible; no copayment; no co-insurance; 100% reimbursement for all covered expenses; no limits on preventive care costs; no deductible for prescriptions; 100% coverage for prescription costs if using a network pharmacy; up to $500 per person per year toward vision coverage; up to 20 acupuncture or acupressure visits a year, up to 50 annual visits each for chiropractic care and physical, speech and occupational therapy; 100% mental-health coverage both in- and out-of-network, with unlimited office visits and up to 30 days inpatient coverage; up to $4,000 per person per year in dental coverage, with no annual deductible or co-payment; and up to $2 million in life insurance coverage (at three times base salary) and $25,000 a month in long-term disability benefits.

Nor are Northrop Grumman executives hurting in terms of other benefits, pay and perks. This is the company that’s paying $280 a mile to move its chief executive officer across the country, as we footnoted in late June, and it promised its former chief $700 an hour (or more) for consulting work on top of more than $50 million in pensions, as we footnoted a year ago.

If you have dreams of getting this kind of platinum-plated medical coverage, however, you’re out of luck, even if you were chosen to run Northrop Grumman tomorrow: This plan was officially closed to new participants on July 1, 2009. But don’t fret for today’s top brass — as far as we can tell, all but one of the top five were on the job before that date (General Counsel Sheila Chesterton was hired last year). At least nine more of the company’s elected officers have been around long enough to qualify, though we don’t know for sure who’s in the program.

What’s this kind of benefit worth? It’s hard to say for sure, but there are hints elsewhere in Northrop Grumman’s filings. For example, in describing the severance benefits available to three top officers, the company’s latest proxy pegs the cost of the Special Officer Retiree Medical plan at $214,820 and $394,376 per person for lifetime benefits that can kick in as early as age 55. Given that the retiree-medical plan (which was closed to new entrants in 2007) is described as a “continuation of the [officer’s] executive medical benefits,” we figure that’s a decent yardstick.

Curiously, nowhere in the proxy does the company seem to describe the in-service health-care benefits from the Legacy Officers Plan, beyond mentioning “enhanced health and welfare benefits” in passing on p. 40; nor does it say who gets the benefits.

Then again, if we were a government contractor providing Rolls Royce benefits to top executives in the current climate, we might try to downplay things as well.

Image source: Rolls Royce Phantom Drophead CoupâŸ, from company website


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