Health Benefits for Public Retirees

At a recent town financial forum in Belmont, “multiple residents” questioned whether we should continue to promise subsidized health plans for retirees from state and local government jobs.

Massachusetts public employers face a combined liability of approximately $50 billion for promises made already. Retiree health care costs are growing faster than other areas of the budget and are crowding out other priorities. Well under 20% of private sector employees have any expectation of employer-subsidized health benefits in retirement and very few can expect benefits as generous as those in the public sector. Finally, although most older citizens still spend a lot on health care, we do have a relatively strong safety net, given our recent health care reforms.

I’d like to sketch a possible response to the problem and get some feedback: (1) We should protect retirement health care for all current retirees and protect the expectation of retirement health care for all current state and local employees. (2) We should abolish the expectation of employer-subsidized retirement health care for new state and local employees. (3) We should allow individual employee bargaining units to negotiate employer contributions to health care savings accounts. (4) We should provide a mechanism for municipalities to transfer to the state the risk of cost growth associated with existing employees and retirees.

A recent official state commission made a complex recommendation that would have abolished or reduced the expectation of benefit for some, but not all, existing employees. Affected employees asked with some reason, why us and why now? Many have taken lower paying jobs based on the benefits promises that the state had made to them. The commission’s recommendations fell flat in the last legislative session. The cleaner approach is to abolish the benefit outright for new employees, but to grandfather all existing employees and retirees.

In some physical jobs, employees need to retire before they reach Medicare eligibility at 65. To help give them good choices, we should allow them to bargain for supplementary employer payments into health care savings accounts. Localities will bear an increased current cost, but they will no longer face hard-to-estimate future liabilities.

Abolishing the expectation of retirement health benefits for employees who start after the effective date of the act, will not lead to any immediate savings. I would allow municipalities that shift retirees into the state’s Group Insurance Commission plan to elect to also transfer the growth in future costs to the state. The state cannot afford to outright take over the liability, but if the state had responsibility for managing the program, it could perhaps take responsibility for the cost growth. Managing health care costs generally is the central financial challenge for the state already. Municipalities shouldn’t have to juggle other priorities against costs that they have little control over.

I’d very much appreciate feedback. I am not sure where this issue will fit in the constellation of challenges that we face in the next legislative session, but I’d like to know how people feel about the issue.

Published by Will Brownsberger

Will Brownsberger is State Senator from the Second Suffolk and Middlesex District.

38 replies on “Health Benefits for Public Retirees”

  1. Passing health care costs on to new employees is unfair. The new employees do not get to vote. Sounds a lot like taxation without representation. The young also pay higher costs to subsidize the retirees. What would happen twenty years from now when all the “new employees” vote to change the retirement and health plans for the already retired employees? How would those retirees like that? One plan for every one, no class should be exempt.

  2. How about a defined contribution, vs. defined benefit approach? That is, it would seem that capping costs by only offering a “bronze” level plan for all current retirees would reduce the exposure to big rate increases, and encourage restrained use of expensive health care options thru cost sharing. This would entail a lot of education for current retirees and workers, and a lot of compromise in expectations, but would also allow the system to be sustained in some form (and would likely improve the health choices of many workers/retirees).

  3. My initial thoughts:
    One of the reasons that public employees accept jobs in the public sector, even though the pay is often much lower than they could earn in the private sector, is for the long-term benefits.
    If people accept careers with certain benefits, to change the rules of the game after they have started is unfair.

  4. I am a retired public school teacher. I am very well educated and devoted my entire working career to educating and caring for the children in my school district. I have earned a BM ED, a M ED, and 60 credits towards my DR. I paid for all of my education myself. Despite the fact that teaching paid me less than half of what I would have earned had I gone into the private sector, I believed teaching was the most important job that I could do to help society. I readily worked for less and in return I was promised a decent pension and health insurance. Over the years my pension contributions increased from 5% of my salary to 11%. My health insurances costs also went up. I willingly paid all the increases because the commonwealth promised me a fixed retirement amount based on years of service and salary. They made the same health care promises. I would not have been able to work at this lower pay rate had I not had the pension and health insurance contracted promise to count on in my future. It would be a big injustice to change the rules at this point in my or any retirees life. In addition you must consider the fact that MA teachers are not allowed to collect social security despite the fact that most of us have taught 2 and 3 extra jobs to compensate for our low salaries to support our families. I paid into social security but am not entitled to collect. Is this fair?

  5. 73 HEMENWAY ST APT 308

    How many of these folks are not aware of WEP (Windfall Elimination Provision)? They take aside one piece of a retirement benefit and do not look at total compensation or equivalent compensation.
    Many people stay in state government for a number of years to get it.

    Perhaps extended the number of years u need to be eligible for future retirees would work.

  6. I would love to see a list of these “physical jobs” that require our dear bureaucrats to retire before Medicaid kicks in. What do they have to do? Lift a pencil? Walk up a flight of stairs? Public union member Cheryl Jacques is suing the State of Massachusetts because she was passed over for a free parking space. The bureaucracy is infested with thousands of do-nothing, job-for-life hacks who spend their time spiking their pensions and then get demand additional pay for not taking vacations while on administrative leave. Come on!

    Will, the taxpayers are realizing they are being taken for chumps. New taxes just disappear in to pension funds and no-show jobs. If you want money for more retirement goodies, get rid of the hacks. Convince us that you can spend the money you are already taking from us responsibly before you ask for more. In that regard, you and our other elected representatives have lots to do.
    Cheers, Scott

  7. This seems reasonable to me- but it must be well publicized for at least 18 months ahead of implementation.

  8. I wholeheartedly agree with your first point, “We should protect retirement health care for all current retirees and protect the expectation of retirement health care for all current state and local employees.”

  9. The problem of increasing health costs is an issue for everyone in the US, employer and employee. I don’t think shifting the cost to the employee or retiree is fair. There needs to be an overhaul of the system. Perhaps some limits on profits of the drug companies and insurance companies might be interesting.

  10. Will — I like your ideas, but think we need to go further. Current commonwealth employees should pay 1/3 of the healthcare costs and should be in Medicare upon retirement. Local jurisdictions should bargain for the same payment plan.

    1. At 65 MA retires enter Medicare..they pay Medicare portion of FICA, but not the SS part, so don’t get any SS checks when they retire.

  11. Option 1) is the right course.

    The tax payers of MA get a great deal from their public employees. The state doesn’t pay SS tax on it’s workers and also only pays a fraction of the cost of the retirement plan….now there is talk of removing more renumeration from state worker’s by attacking their retiree health benefits. If those benefits are removed they should be replaced by an across the board pay increase

  12. This seems like a reasonable compromise, and is probably the best that can be achieved. But what are the implications for coverage in going to the state’s plan? (BTW: I am a retired municipal employee which may influence my view)

    Also, on a more left wing philosophical note: many people today don’t want to join unions. And so a lot of benefits like pensions and retirement health care in the private sector have been sharply reduced. But instead of trying to regain those benefits for themselves, people now try to reduce them for everyone.

  13. Hi Will,
    I appreciate the fact that you have suggested not to remove the healthcare benefits from the current retirees. That being said, for those who do not have the benefit of a spouse’s income, I fear that without some subsidy from towns, they will struggle to make ends meet in retirement. Even with a very good supplement, many medical bills are not being covered by a supplement or by Medicare and so there is a lot of more out of pocket money going toward these bills. More than before due to changes in Medicare and insurance policies. For many, this can be a hardship. I am very concerned for all of them. For many who have healthcare needs and need to see specialists, some of the newer insurance policies do not allow you to go to some of the better specialists for serious conditions. Many have been forced to leave medical teams that have been treating them for years. It is very tricky and a very complex issue. Thank you for all your hard work.
    Happy Thanksgiving.Mary

  14. Dear Will,

    It’s a thorny situation. If I were one of those soon to retire employees, say, within the next 4 years, I would like to be grandfathered. If I am about to retire, I would like to be grandfathered. Anything greater than the 4 years would have to be abolished. It gives the employee more than 4 years to think about their future health benefit situation and gives them enough time to save money or do whatever is necessary for them to be well armed without the Government safety net. Nobody in the private sector has anything like this. I work at the Smithsonian, a trust instrumentality of the United States Government, and I don’t have guaranteed health benefits after I retire. I will have to go on medicare and pay medicare part B to be appropriately covered. I am hoping that I will be able to afford medicare part B. So I think that local government employees should stiffen up and stop the whining. They have had it very good for very long on our tax dime. So to recap, 4 years max. That’s my view.

    Best regards.

    1. State and local employees have to go on Medicare when they reach 65. They pay full Medicare premiums and have to buy MediGap policies. If a state or local worker retires before 65 they can usually continue the health insurance they had when working, paying the same premiums as if they were still working.

      State employees do not get SS and get a 5% matching employer contribution to their retirement plan, they must pay either 9% or 11% into the plan from their paychecks. Compare that to the very generous retirement packages of Smithsonian employees…I was an SAO Trust Fund employee. We should not be attacking the hard earned benefits and wages of others but fighting for those that we have ourselves.

    2. Actually you can continue your health insurance after you retire from the Smithsonian before you have to go on Medicare at age 65. If you are a Federal employee the rules and very similar to the MA state rules in that you pay the same premium as if you were still working. If you are a Trust fund employee you have to pay the full amount of the premium, this is the same as MA deferred retirees. So if you are against the MA retiree health benefits you might start by asking any Smithsonian Federal employees to give up their retiree health benefits first.

  15. Public employees tend to be paid at lower rates than the equivalent positions in private industry. One of the inducements for public service is the subsidy of one’s health and welfare benefits by the state or municipality where one is employed.Because of the subsidy, one may be denied the full payment of earned Social Security benefits under WEP regulations. These benefits are not a gift… they help to assure the quality of public employees.

    1. I agree. The public doesn’t realize that the state saves millions of dollars by opting out of SS and to do that it mandates that state employees pay either 9% or 11% of their wages into the pension plan. State employees do not get any SS due to their work for the state and if they have SS from a previous job it will be reduced by the federal Windfall Elimination Provision (WEP). Also employees in the state pension plan don’t vest in it, or retiree health coverage, until they have been employed for 10 years. The average pension for a state worker is $29k….and remember they don’t get SS. State workers are generally not well paid and there is a lot of misinformation about their benefits.

  16. Will,

    Your proposal seems sensible to me. Certainly all existing employees need to have the promises made to them honored.

    It would help in making judgments about this issue to know something about the pensions that employees have.

    Thanks for the opportunity to comment.

    Kind regards.

    1. Understanding the benefits of state and local workers is surely required before people comment on them. Unfortunately there is an information gap that is often filled with incorrect assumptions.

      MA state pensions underwent significant reform in 2012 greatly reducing the benefits of new employees. It must always be remembered that state and local workers must pay 9% of their gross salary into the state pension plan….that’s not optional…and higher paid workers pay 11%. Also it takes 10 years to vest in the state pension plan, if you leave employment before then you get no pension. Also the state has opted out of social security so it does not pay any federal SS tax saving it (and MA tax payers) billions of dollars, but depriving state and local workers of a SS check.

      But Sen. Brownsberger’s post was about retiree healthcare, not pensions. As a starting point people should understand that the vast majority of retirees only get subsidized health care from a max of age 55 to 65 because at age 65 they have to go on Medicare, just like everyone else.

  17. Here is a perfect example of all that is wrong with Massachusetts pension rules…..

    The highlights: Campatelli has been on paid administrative leave from the $134,692 job for nearly a year. The investigator, former probation commissioner Ronald P. Corbett Jr., found that Campatelli worked only 15 hours a week and spent much of it taking smoking breaks, playing scratch tickets, looking at East Boston real estate on the Internet, and doing puzzles. If her pension is approved, Campatelli, 50, would qualify for about $53,000 a year

    This is an injustice!

    1. There are individual cases that seem unfair, but the average MA state worker’s pension is $27k and they don’t get any SS for the time they worked for the state. There have been significant changes to the state pension plan recent;y and I encourage you to research those.

  18. Thanks to all who have weighed in so far.

    This is a very complicated conversation. I wanted to surface an approach and I appreciate the comments that people have made, all of which I have read.

    Over the next few months, it will become clearer what level of interest there is in making changes on this in the coming session.

    For those interested in the issue generally — some raised questions about pensions and the WEP — I’ve written more on the issues at this thread:

  19. Hello:

    Thanks for the opportunity here to submit some feedback. I work in the private sector and am lucky that I am able to get family health care coverage with my employer. But this coverage is paid for both by me and my company, and the costs continue to rise every year. I feel strongly that some change is required in the government benefit that provides health care coverage for its retired employees. I think I agree that some compromise is necessary that allows existing retirees to be “grandfathered” in some way. HOWEVER, I do feel strongly that these existing retirees should shoulder more of the cost of this benefit, and like the rest of us in the private sector, they should be responsible for helping in paying for the increased costs of this health care benefit as the costs rise over time.

    Thanks for listening,
    Tim Logan.

  20. Status of consideration of savings to state via early retirement for state employees e.g. add 5 years to age or years of service? Bill filed/pending? Thank you

    1. Changing retirement health benefits for current retirees and employees is problematic as it is reneging on a promise and the basis under which employment was entered. It’s like a bait and switch, most people acknowledge the basic unfairness of changing a contract retrospectively. This was the basic principle that informed the recent reductions in state retirement benefits, they were reduced for new employees and not current retirees or employees who entered into a contract with the state in good faith.

  21. I think that any reform should result in a system where the full cost of all compensation, both present and future, must be paid out within the contract term or funded by a bond issue. Additionally, there should be a maximum length for labor contracts (perhaps 5 years) that is not significantly longer than an elected office term.

    Unions should be free to negotiate for whatever benefits they feel are appropriate for the employees they represent. The main goal should be to stop politicians making promises that will not come due until long after they have retired.

    1. Would you then support giving state employees immediate vesting in the pension plan rather than having to wait 10 years?

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