A tentative contract agreement between Verizon Communications Inc. and its two major unions will limit the company's exposure to big retiree health care costs for future employees.

Verizon, the Communications Workers of America and the International Brotherhood of Electrical Workers last week reached an agreement on a three-year contract in which the New York-based telecommunications company would continue to pay 100% of current workers' and retirees' health care premiums. The pact, which still needs to be ratified by union members, covers 65,000 workers in 10 Northeast and Mid-Atlantic states.

However, for Verizon employees hired after Aug. 2, the company would offer a defined contribution approach for retiree health care. Verizon will contribute a fixed dollar amount, currently $430, and multiply that by an employee's years of service at the company.

That amount is to be paid annually to the employee upon retirement to purchase retiree health insurance coverage through Verizon until his or her death, a Verizon spokesman said. The fixed dollar amount will be subject to negotiations at each contract renewal.

Such fixed-dollar approaches in providing health care coverage to retirees have been increasingly popular over the last year or so as employers avoid the extremes of offering benefit-rich plans that are unaffordable over the long run or not offering such coverage at all.

A Verizon spokesman said increasing competition and the rising cost of health care influence the amount of retiree benefits any company can offer. He said Verizon is not unique in this struggle, and everyone is feeling the pinch of surging medical costs.

A spokeswoman for the CWA said the agreement, which also addressed issues such as increasing wages, pensions and union membership, was a significant gain for its members.

"It maintains quality benefits for workers and retirees," she said.

Still, concessions were made despite the union's history of fighting for high-quality retiree medical benefits. Ms. Johnson said increased competition makes it difficult for employers to provide such benefits. Those that do end up being at a disadvantage because they have higher costs than those companies offering no health care to their employees.

She said a national health care system is needed to fix the problem, and therefore part of the contract requires Verizon to contribute $2 million a year to a project in which the company and the two Washington-based unions will work together to achieve national health care reform. More details of the plan were not available.

"It's an unlevel playing field when it comes to competitors," she said. "We can't continue to have a system where some employers pay nothing and some employers pay their fair share or more."

Verizon has plenty of company in attempting to pare future medical costs.

Last year, the United Auto Workers reached agreements with General Motors Corp., Ford Motor Co. and Chrysler L.L.C. to transfer the automakers' retiree health care benefit liabilities to UAW-controlled voluntary employees' beneficiary associations in exchange for the companies making tens of billions of dollars contributions to the VEBAs.

After making those contributions, the automakers will have no further obligation to provide retiree health care benefits.

Cara Jareb, director of retiree medical consulting for Watson Wyatt Worldwide in Arlington, Va., said she thinks unions are making concessions on retiree medical benefits hesitantly, but are more willing to do so for new hires than their current members.

"Employers are really trying to move away from taking on that continued risk of paying for the cost of health care as people age and technology advances," Ms. Jareb said.

She said it is not uncommon for companies offering retiree medical benefits to have years-of-service contribution formulas, such as the one in Verizon's agreements with the two unions. In recent years, she said, health savings accounts and health reimbursement arrangements have become popular approaches to funding retiree medical care.

For example, Ford Motor Co. this year began to offer a program for nonunion Medicare-eligible retirees in which the company contributes $1,800 per year per retiree plus an additional $1,800 for a retiree's spouse, to an HRA.

"Everybody is aware of the high cost of health care, and it's becoming more difficult to support an open-ended obligation over time," Ms. Jareb said. "It's a big issue that everybody is wrestling with."