HEALTHCARE COMMISSION CLOSELY WATCHED

Tasked With Reducing Retiree Insurance Costs

JULY 2012 VOICE: Retiree and labor advocates are keeping a close eye on the new Special Commission on Retiree Healthcare that is now entering its 3rd month of deliberations.

As we’ve previously reported, the Special Commission was created within Chapter 176, Acts of 2011 (Pension Reform Law), with the task of studying and reporting on ways to reduce spending on state and local retiree health insurance. Our Association’s Shawn Duhamel is the Commission’s Retiree Representative, while retired Firefighter Andrew Powell represents the AFL-CIO.

At its first two meetings, the 11-member Commission heard from a series of health care experts and various advocacy groups. In addition, the state’s Group Insurance Commission, whose Executive Director Dolores Mitchell serves on the Commission, made a presentation of its operations and state retiree benefit levels.

Association Executive VP Bill Rehrey made a presentation on behalf of our Association at the May 31 meeting. In addition to outlining retiree demographics and our advocacy efforts to help reduce healthcare costs, Rehrey explained the high costs paid by many members for their current insurance plans.

“It is important for the Commission to be fully aware of exactly how the current retiree healthcare benefit works and how much money our members are already paying out of their own pockets. When you look at the facts, many retirees are already struggling under the current system,” explained Rehrey.
“Locally, the average municipal pension is still below $22,000. At the state level, it’s not all that much higher at $27,000.

“So when you see that the average out-of-pocket cost is now $1,200 and the Medicare Part B premium (usually paid in full by retiree) is another $1,200 per person, the current costs really add up. And, that does not even include the monthly insurance premium.”

Unfunded Liability & Solutions

Similar to pensions, there is a long-term liability associated with retiree health insurance benefits. Until recently, these costs were addressed on an annual “pay-as-you-go” basis. But due to changes in government accounting standards (see article page 8) the projected future costs of retiree healthcare must be disclosed and carried on official accounting documents.

And, as was the case with public pensions in the 1980s, little to no money has been set-aside in trust to help fund future health care benefits. This amounts to a reported unfunded healthcare liability of $16 billion for state retirees and roughly $26 billion for local retirees. (Please note that the municipal liability is an estimate at the present time. The Commission is seeking more reliable figures.)

As Association Legislative Liaison Shawn Duhamel points out, it is the perception of large unfunded liabilities that is the driving factor behind the latest round of reforms, not only here in Massachusetts, but also across the country.
 
“Starting back in the 90s, we suggested to municipalities that they participate in health insurance pools. Ten years ago, we knew this was a growing issue of concern and, in 2005, filed legislation allowing for the creation of healthcare trust funds to start setting money aside to pay for future retiree health care costs.

“Back then, we were largely ignored by some of the same people who now propose cutting retiree benefits as their solution to this issue. While we cannot go back in time and say ‘We told you so’, we do believe that the real solution to health care costs does not come from yet another round of cost shifting onto the backs of retirees and survivors.

“Trust funds are now seen as a key part of the long-term health care funding plan, just as they are with pensions. But the real solution to gaining control over rising costs, as well as reducing costs over time, comes from allowing for the host of ongoing reforms to take hold and actually work.”

Association officials point to the 2011 Municipal Reform Act, which has already saved municipal taxpayers in excess of $117 million for FY13 alone, as an example of ongoing reforms that must be given time to be implemented across the state. Similarly, the aforementioned Pension Reform Act will, over time, require employees to retire later than they have in the past, thus reducing retiree healthcare expenses.

State officials are also in the process of enacting the second phase of a Massachusetts Healthcare Reform Act, known as “Payment Reform”. This phase is designed to cut the growth of healthcare costs in half over the coming fifteen years, thus saving the Commonwealth between $150 and $160 billion dollars.

Private insurance carriers, such as Blue Cross Blue Shield, are leading the way on payment reform by their own accord. As we describe on page 9, the Blues began implementing their reform in 2009 and have now rolled it out across their commercial HMO Blue Network that encompasses 76% of all medical providers in the Blue Cross Network.

Finally, efforts underway at the federal level through the Affordable Care Act also aim to significantly reduce health care expenditures in the coming years – without cost shifting onto vulnerable retirees. See related article on ACOs in the May Voice.

“Our message to the Commission is twofold: First, the ongoing reform efforts must be given a chance to work. Only then will we have a true picture of our long-term costs and be able to properly gauge what else needs to be done,” said Duhamel.

“Second, we hope to bring attention to some long-standing inequities within our current retiree healthcare benefits. For instance, many communities still require survivors to pay 100% of their insurance premium. This is an abomination that must be addressed.”

With the exception of August, the Commission will continue to hold monthly meetings and will file a report with the Legislature by November 30, 2012.

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