Retiree Health Care Benefits

One of the critical issues before the Public Service Committee this year is retiree health care benefits. We recently held a hearing on the issue which Anne Landry has summarized — see below. I will be working closely with my colleagues to study the issue over the weeks to come. I welcome your thoughts and input in this forum. You can also submit formal correspondence to the committee through by emailing annejohnson.landry@masenate.gov.

—– HEARING SUMMARY BY ANNE JOHNSON LANDRY —–

 

On Thursday, October 31, 2013, the Joint Committee on Public Service, chaired by Senator Will Brownsberger and Representative Aaron Michlewitz, heard H59, An Act providing retiree healthcare benefits reform. The bill was filed by Governor Patrick and embodies many of the recommendations made in the report filed by the Special Commission to Study Retiree Healthcare and other Non-Pension Benefits  (Other Post-Employment Benefits, or “OPEB,” Commission).

The bill would change eligibility criteria for retiree health insurance for public employees- extending the age and years of service requirements for eligibility. It would apply to both current and future employees, but would grandfather all existing retirees and certain current employees approaching retirement.

The chart summarizing the bill and the Summary of Exemptions below were prepared by the Executive Office of Administration and Finance:

Summary of Retiree Healthcare Benefits Reform (House Bill 59)

Section Number	Item		Recommendation
1,8	Minimum Age		Minimum age of eligibility for retiree health care benefits increased by 5 years for all groups (60 for Group 1, 55 for Group 2, 50 for Groups 3 and 4)
1,8	Minimum Years of Service to Receive Benefit		Minimum years of service increased from 10 to 20 years for all groups
2,3,5,9,10,11	Pro-Rating of Benefits		Prorated from 50% premium contribution after 20 years to maximum current retiree benefit (currently 80% of premium for State retirees) at 30 years
1,8	Affected Population		All future employees. All current employees except (i) those with 20 years of service and within 5 years of pension eligibility as of July 1, 2013; (ii) those within 5 years of Medicare eligibility and with a minimum of 9 years of creditable service as of July 1, 2013; and (iii) teachers enrolled in Retirement Plus, upon reaching age 57 and the statutory maximum of 80%.
1,8	Continuing Service		Individuals who leave public service without retiring will not be eligible for contribution upon retirement unless (1) they have at least 25 years of creditable service and retire within 5 years after leaving or (2) they have at least 20 years of creditable service and are enrolled in Medicare Parts A and B.
2,10, 19	Phase-In of New Requirements		Any current employee who, on July 1, 2013, is at least age 50 and has completed 15 years of service shall be eligible to receive a 50% premium contribution upon retirement. Any current employee who, on July 1, 2013, is at least age 55 and has completed 10 years of service, shall be eligible to receive a 50% premium contribution upon retirement. Implementation postponed for communities where contribution level for retirees is set by special act
1,2,8, 10	Disability Retirements		Accidental disability retirements exempted from new requirements. Ordinary disability retirements will be exempt from the reform until the 2014 Affordable Care Act exchange is available.  At that time, ordinary disability retirees shall receive a 50% premium contribution for 10 to 20 years of service.  Beyond 20 years, prorating will apply.
4	Non-Contributory Coverage		State retirees who are not eligible for contributions to coverage under the reform may continue coverage at full cost.
6, 12-18	Survivor Benefits		Future surviving spouses eligible for a minimum of 50% premium share; current surviving spouses enrolled in governmental unit’s coverage and paying higher share of coverage eligible for minimum of 50% premium contribution.
7	Retired Municipal Teachers		GIC administers a separate program for retired municipal teachers.  This section applies the reform rules to this group.
10	Future Changes to Premium Contributions		Municipal retiree contributions are “frozen” at levels as of 1/1/2013 for a period of three years, but changes adopted locally before 1/1/2013, shall be honored. Following the moratorium, the ability to reduce contributions shall be returned to local option, but any municipality that exercises this right shall hold harmless (grandfather) existing retirees at their current level of contribution at the time of implementation.
20	Sustainability		A&F, in consultation with Division of Local Services, GIC and PERAC shall establish a procedure for monitoring the continuing fiscal sustainability of state and local retiree health care benefits.

               

Summary of Exemptions of Certain Individuals from Proposed Reform

The legislation as drafted exempts certain categories of people who are retired, or near retirement.  These categories include:

• Current retirees
• Employees and former employees who, on July 1, 2013, are within 5 years of eligibility for superannuation retirement under chapter 32 and have received a minimum of 20 years of creditable service;
• Employees and former employees who, on July 1, 2013, are within 5 years of eligibility for Medicare and have received a minimum of 9 years of creditable service;
• Individuals who are members of the Teachers Retirement System or the State-Boston Retirement System who participate in the alternative superannuation retirement benefit program established under subsection 4 of section 5 of chapter 32 and are at least 57 years old and eligible for a retirement benefit of 80 per cent;
• Individuals receiving an accidental disability retirement under section 7 of chapter 32; and
• Individuals receiving an ordinary disability retirement under section 6 until access to healthcare benefits though a Health Insurance Exchange becomes available to qualified individuals under the Patient Protection and Affordable Care Act, Public Law 111-148.

 

Additionally, the following employees, though not fully exempt, are entitled to a 50% contribution from the state:

• An employee who, by July 1, 2013 is at least 50 years old and has completed 15 years of creditable service;
• An employee who, by July 1, 2013, is at least 55 years old and has completed at least 10 years of creditable service; and
• An ordinary disability retiree with between 10 and 20 years of service.

 

The Committee heard a myriad of viewpoints at the hearing, which lasted for six hours. The following issues were raised at the hearing.

Some change is necessary to ensure a sustainable government.

We heard from proponents of the bill that with $46 billion in unfunded retiree health insurance liabilities, reform is necessary to control these liabilities. They explained that the bill is projected to save $20 billion over 30 years. Proponents argued that reform is necessary to maintain the government’s credit rating and to ensure the sustainability of the government, including a sustainable system of retiree health insurance. Reform is necessary, they indicated, to prevent cuts in critical government services and to prevent an eventual reduction in the number of public employees. Those who control the government’s purse strings are responsible for overseeing a balancing act among benefits, services, jobs for public employees, and taxes. Without reform, proponents of the bill argued, something will have to give.

House Bill 59 raises serious concerns for many public employees.

The primary argument the Committee heard by opponents of the bill was that it constitutes a violation of a promise and would pull the rug out from public employees who have been counting on their public employer subsidizing their health insurance at a certain level in their retirement. Some opponents argued that it would impair the government’s ability to attract employees, particularly vocational technical teachers, scientists, and engineers.  The Committee heard that it would have a serious impact on low-income and sick workers. The grandfathering provisions do not cover all individuals close to retirement, and opponents of some of the bill’s provisions explained that the extended years of service requirement would have a disproportionate impact on women. Many individuals who testified asked the committee not to shift the costs of the unfunded liabilities onto vulnerable workers. Some said it would penalize individuals who became public servants mid-career. The Committee learned from those testifying that the bill creates an incentive for workers not grandfathered to retire immediately to preserve their current benefit. Some of those testifying indicated that the bill would present challenges to deferred retirees who have planned for this benefit and to corrections officers, who can currently retire after 20 years (but would have to work for 30 years to be eligible for the full retiree health insurance benefit).

Other Considerations

The Committee was asked to consider the bill’s interaction with the Affordable Care Act, which would provide a safety net for some, but not all, who would be impacted by H59. The Committee was asked to weigh the pros and cons of the following provisions of the bill: one that would freeze contribution rates in perpetuity for retirees, one that would freeze contribution rates for three years for all, one that would provide health insurance for survivors, and one that would require municipalities to provide a minimum 50% contribution for health insurance for eligible retirees. The Committee was asked to consider the reliability of the 30-year actuarial projection. Finally, the Committee was asked to consider alternatives, including more progressive alternatives, to H59 to achieve the same goal of reducing unfunded OPEB liabilities.

Anne Johnson Landry
Committee Counsel and Policy Advisor
Office of State Senator William N. Brownsberger