HEALTHCARE COMMISSION ENDORSES MASSIVE $15-$20 BILLION REFORM

Retiree Protections Include Contribution Rate “Freeze”

DECEMBER 20, 2012: Following nine months of lengthy meetings, detailed analysis and intense negotiations the Special Commission on Retiree Healthcare completed its work today with an 11-1 vote to endorse a proposal that, if passed into law, will save Massachusetts taxpayers at least $15-$20 billion over the next thirty years.

Of utmost importance to public retirees and current employees is, however, what the impact of such a reform would be. Thankfully, our Association, working in unison with the AFL-CIO, was able to pass a full exemption from the reform for all current retirees and most active employees near retirement age.

Legislative Liaison Shawn Duhamel represented our Association on the Commission. Andrew Powell, of the AFT Massachusetts, represented the AFL-CIO. Anne Wass from the Mass. Teachers Association also served as the Commission’s Co-Chair.

Working together as a team throughout the nine-month process, Duhamel and Powell were able to secure a permanent prohibition on a municipality increasing contribution rates on existing retirees. If passed into law, municipalities could only increase contribution rates prospectively for new retirees only – grandfathering existing retirees at the contribution rate percentage paid as of January 1, 2013.

In addition, the proposal calls for a 3-year moratorium on any contribution rate increases. This allows time for the various ongoing reforms to take effect and have a chance to work without further kneejerk reaction at the local level, which could lead to further benefit cuts impacting retirees.

After failing to beat back the moratorium and retiree rate freeze, the Mass. Municipal Association (MMA) asked its representative, Shrewsbury Town Manager Dan Morgado, to vote against the report.

According to the Segal Company, one of two actuarial firms hired by the Commission to assist in the study, municipal governments will save $9 billion-$12 billion over the coming 30 years as a result of the proposal. Cities and towns can expect to save at least $600 million in the first 10 years alone.

State savings, tallied by Aon Hewitt, range from $6 billion to $8 billion over 30 years, with over $400 million in savings coming within 10 years. The totals represent more than a 30% reduction in healthcare spending for both the state and municipal governments.

“Labor and the Retirees agree to these reforms, which will be paid for by our combined members over time, with the understanding that there must be certain guaranteed protections for our people. It is unfortunate that the MMA, despite achieving what will likely exceed $12 billion in savings, could not do the right thing and support this proposal,” explained Duhamel. “However, this forced vote should not reflect poorly on Dan Morgado, who did negotiate in an honest and forthright manner.

“Between Municipal Healthcare Reform (Chapter 69), Pension Reform (Chapter 176) and this new reform proposal public employees and retirees are being required to pay more and work longer for fewer benefits. While we agree that dealing with unfunded healthcare liabilities is necessary, we also have to find ways to guarantee retirees certain protections.”

Governor Deval Patrick is expected to transform the Commission’s report into a legislative proposal, which will be filed in conjunction with his FY14 Budget in mid-January 2013. The proposal would then go to the House, where the legislative process will begin.

“I wish it weren’t the case, but I fully expect the leadership of the MMA to fight us every step of the way on this. Apparently, no level of savings is ever enough for them,” said Association President Ralph White. “Labor and the Retirees really went the extra mile here in working with the Governor and Legislature to strike a balanced deal. If it’s not good enough to the MMA and they want to take away the few protections that we were able to win, then I’m happy to have that fight.”

The Association and AFL-CIO won early support for its proposal from State Treasurer Steve Grossman, Assistant Senate Majority Leader Jack Hart and Representative John Scibak, chairman of the Joint Committee on Public Service. Senator Michael Knapik, Representative Jay Barrows, GIC Executive Director Dolores Mitchell and ANF Assistant Secratary Greg Mennis joined with Commission Chairman Henry Dormitzer in supporting the proposal at today's meeting.

Adopted Proposal

The Commission approved the following reform proposal, put forth by the AFL-CIO and our Association, by a vote of 11-1.

Years of Service w/Age Requirement

Future public employee retirees shall be required to complete twenty (20) years of service and have reached the age of 60 (group 1), 55 (group 2), and 50 (group 4)

Pro-Rating Contributions

Future public employee retirees shall receive a health plan employer contribution based on a pro-rated scale based on completed years of service upon retirement as follows:

Years of Service

Premium Contribution

20

50% of Premium

23-26

1/3 of the difference between 50% and MAB

27 – 29

2/3 of the difference between 50% and MAB

30 Plus

100% of MAB*

*Maximum Available Benefit

(Example for illustration purposes);

Community A provides 70% of the premium contribution to retiree

Years of Service

Premium Contribution

20

50% of Premium

22 – 25

56.7% of Premium

26 – 29

63.3% of Premium

30 Plus

70% of Premium (100% of MAB)

Exempted Employees and Retirees (Grandfather)

The following current employees and currently retired shall be exempt from the aforementioned age, years of service requirement, and pro-rating of contributions as of effective date of any so-called Reform Law:

  1. Any retired public employee who is retired.
  2. Any employee within 5 years of retirement age, by pension group (IE…group 1 would be 50 and above), and who has completed 20 years of service.
  3. Any current Teacher participating in Retirement Plus and, who retires at full pension benefit (80%), and is age 57 and above, shall be entitled to 100% of MAB regardless of retirement age.
  4. Any employee who within 5 years of the current Medicare Eligible age and, within twelve months of vesting.

Partially Exempted Employees

  1. Any current employee who is age 50 and has completed 15 years of service shall be eligible to receive a 50% premium contribution.
  2. Any current employee who is age 55 and has completed 10 years of service shall be eligible to receive a 50% premium contribution.

 In the event these employees work beyond twenty years of service, pro-rating would prevail upon retirement.

Employee and Retiree Protections:

The following economic protections are necessary as any Reform is implemented:

  1. Municipal retiree contributions are “frozen” at levels as of 1/1/2013 for a period of 3 years from the effective date of the OPEB Reform Law, provided that changes adopted locally before 1/1/2013, shall be honored. Following the moratorium, the ability to reduce contributions shall be returned to local option given, however, that any municipality that exercises this right shall hold harmless (grandfather) existing retirees at their current level of contribution at the time of implementation.
  2. All surviving spouses (both existing, and if enrolled in the municipal health plan & prospective) in municipalities be entitled to a minimum 50% employer premium contribution.
  3. All “Accidental” disabilities (both current/future) are exempt from the reform.
  4. Ordinary disabilities are exempt from any Reform Law until such time that the 2014 ACA Exchange is available. At that time, ordinary Disability Retirees shall receive a 50% premium contribution from 10-20 years of service. Beyond 20 years of service, proration shall apply.
  5. The Commission report will make note that the recommendations are consistent with the Commonwealth’s recent practice of applying changes to new retirees only.
  6. The 2014 ACA Exchange shall not exclude any public employee retiree from participating and the Commission recommends that in the future, retirees are provided with the information necessary to determine if coverage under the ACA exchange may be of comparable quality at a lower price.

Implementation:

The Massachusetts AFL-CIO recommends that the OPEB Reform be implemented as a comprehensive mandatory package with the Commonwealth resolving any concerns that the inclusion of the change to survivor benefits would potentially create an unfunded mandate by agreeing to reimburse municipalities in the event that the cost of the survivor benefits portion of the OPEB reform offsets 50% or more of the savings. 

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