COLA & Health Insurance Key Items

MAY 19, 2009: The Massachusetts Senate is in the midst of debating the Fiscal Year 2010 budget. Paramount amongst the various issues being debating is how the state will grapple with the severe loss in tax revenue that is the result of the economic recession. Budget officials now project a FY10 deficit that could exceed $5 billion.

While the federal stimulus and state’s reserve account have helped to close the budget gap, the worsening economy continues to cut deep into the Commonwealth’s tax revenues. The Senate is now considering a 1.25% increase in the state sales tax, along with the creation of local option taxes (hotel, meals, etc) designed to help close the budget gap. However, severe spending cuts are expected to remain in effect, even if taxes are raised.

Of great importance to the Association is the approval of the annual 3% cost-of-living adjustment (COLA) for state and teacher retirees. Governor Patrick and the House of Representatives each included the full 3% COLA in their respective budget proposals. While the funding for the state and teacher COLA is automatically built into the Commonwealth’s pension funding schedule, the enabling language for the payment to occur must be approved by the Legislature during the budget process.

“Despite the budget crisis, I feel confident that the 3% COLA will be granted this year. Thankfully the funding is built into the pension funding schedule and is not subject to direct appropriation,” explained Association President Ralph White. “For local retirees COLA approval is handled by the local retirement board. Most of the 104 local retirement systems have now approved the full 3% COLA, which will be paid in July."

Health Insurance Changes Eyed

Taking the same approach as the House, Senate leaders have not proposed any change to the health insurance contribution rates paid by state retirees for their state-run Group Insurance. Various proposals exist that would increase rates for active workers. The House proposes a contribution split of 80/20% for existing active state workers, while new hires would pay 25%. Senate budget writers are proposing a 70/30% split of all active workers.

Under both plans, as well as that proposed by the governor, state retirees would remain at 90/10% (pre-July 1994) or 85/15% (on or after July 1, 1994). The contribution rates, for most local or municipal retirees, are set by the community from which you retired. In communities that have adopted coalition bargaining (section 19), the contribution split is negotiated and incorporated into a formal contract, known as the PEC Agreement.

The Senate is also considering a series of amendments that may make significant changes to the governance and structure of local health insurance plans. Association officials are fighting to maintain local autonomy over healthcare, as well as to grant retirees a voting seat at the local heath insurance bargaining table.

“We expect the Senate to complete their work on the budget late this week, at which time a conference committee will be formed to iron out a final consensus budget that will be passed in late June,” said White. “This is a long complicated process, so members should stay tuned for updates.”