Local Insurance Mitigation Funds Essential

NOVEMBER 2011 VOICE: A major point of negotiation during the Municipal Health Insurance Reform debate was the issue of mitigation funds being set aside to help offset the increased costs to be borne by retirees, survivors and employees under the new Municipal Health Insurance Law (Chapter 69, Acts of 2011).

The desire to protect retirees and survivors, particularly those who have been retired many years and living on small pensions, was a major focal point of the legislative leadership. Retirees were the main driving point behind not only the creation of mitigation funds, but also in ensuring that enough of the local savings would be set aside to help offset the new costs.

“The whole idea behind the savings was to protect retirees, survivors and active employees from runaway out-of-pocket costs. This was the one area of complete agreement as the bill worked its way through the legislature,” recalls Association Legislative Liaison Shawn Duhamel. “Special consideration was given to retirees’ Medicare Part B costs, as well as the costs of prescription drugs. It was also decided to leave the details of how to best use the mitigation funds up to the Public Employee Committee (PEC).”

As communities implement the new Sections 22 & 23 (Chapter 32B), it is important that the  PEC take steps to ensure that Health Reimbursement Accounts (HRAs) and other mitigation steps (such as Medicare Part B reimbursement) are properly established. Considering that only up to 25% of the first year’s total savings are required to be set aside, the importance of mitigation efforts becomes even clearer.

Given that the average pension in most municipalities is well below $20,000 (below $15,000 in smaller towns), the ability of many retirees to absorb new and higher out-of-pocket costs is extremely limited. Again, the driving factor behind the mitigation funds and HRA was to provide protections for these very retirees.

Therefore, as mitigation efforts and HRAs are established in local communities the following points should be considered:

Medicare Part B Reimbursement: Special consideration should be given toward reimbursing Medicare enrolled retirees for a portion of their Medicare Part B premium. For retirees newly enrolled in Medicare, the current premium is $115.40 per month per person. Without reimbursement, annual Medicare premium costs run $1,384.80 per individual ($2,769.60 per couple).

For communities that must now implement mandatory Medicare pursuant to the new state mandate (new Section 18A of Chapter 32B), there will be a tremendous savings to the municipality. While not required under Chapter 69, there is no prohibition on the municipality choosing to use a portion of these savings toward mitigation efforts.

Comprehensive HRAs: In the spirit of Chapter 69, we believe HRAs should be designed in a comprehensive manner to provide protections to the most vulnerable retirees, survivors and employees. In doing so, the HRA can target for relief those with extraordinary out-of-pockets costs or those long-standing retirees and survivors living on pensions well below the average.

Duration of Funds: What steps, if any, can be utilized to extend the life of the HRA or other mitigation resources? Depending upon the specifics of local circumstances, some municipalities may be willing to go beyond the direct requirements of Chapter 69. However, the law does not require the continuation of an HRA or other mitigation measurers once the first year’s savings has been depleted.

Mitigation Promotion: In order for retirees and survivors to benefit from HRAs and other mitigation efforts, the program’s existence must be promoted by the municipality.

“Here in Brookline, we established an HRA and found that retirees, as well as employees, may not be fully informed about the program,” according to Chet Riley, our PEC retiree designee and elected member of the town’s retirement board. “Therefore, we decided to beef up our outreach and better inform the members on the existence of the HRA.”