The Coca-Cola Co. plans to improve the healthcare coverage it provides for its retirees and their dependents, while also improving its bottom line, with an innovative financing arrangement involving a trust and a captive insurance company. Since 2000, when the U.S. Department of Labor gave Columbia Energy the go-ahead to use a captive insurer to reinsure the long-term disability benefits provided to employees, about 20 companies have won approval to provide ERISA-regulated employee benefits via a captive. But to date, companies have only used captives for group term life or long-term disability benefits.

"This is cutting-edge," says Nancy Gray, regional managing director for the Americas at insurance brokerage Aon. "There's increasing momentum in this area, but this is the first one that has been done for retiree medical."

Coke plans to take an existing voluntary employee beneficiary association (VEBA), a tax-advantaged trust that it set up to fund post-retirement health benefits, and have it buy a medical stop-loss policy from Prudential. According to a Department of Labor notice published in the Federal Register on Dec. 22, the policy would cover all medical claims for about 4,000 retirees and their dependents for their lifetimes.