News

Retirees’ health-care cost is misunderstood piece of state-pension puzzle

The responsibility to fund health-care costs for retirees who have devoted
entire careers to state service is suddenly in the spotlight again.
This is not a new expense or a new obligation, but there is a new effort to
label this cost as a crisis.

For decades, state officials have known the costs exist, and they have
managed those costs in a pay-as-you-go program that does not address the
additional liabilities related to escalating health-care costs, more baby
boomers preparing for retirement, and rising life expectancies.

As policymakers grapple with the best ways to handle these costs in the
coming years, they must not lose sight of public servants–clerks, nurses,
teachers, police officers, firefighters and janitors–that expect adequate
health-care coverage in their senior years.

There is tremendous give-and-take during negotiations between the state and
its retired- and-active state employees. There are very real trade-offs from
one year to the next. For example, many retirees repeatedly gave up higher
salaries during their careers, which might have been available in the
private sector, in exchange for adequate pensions and health-care benefits
at the end of their public careers.

The misconceptions and misstatements about what state retirees actually
receive in health-care benefits started anew this year in response to
Legislative Analyst Elizabeth Hill’s February 17 report, “Retiree Health
Care: A Growing Cost for Government.” The report reviewed some old ground,
such as the fact that the state spends $1 billion a year on health care for
retired state employees and their dependents, and that the costs are
increasing.

State retirees agree with the report’s recommendation that the state begin
pre-funding these health-care liabilities because it may be more economical
to the state over time and it may help strengthen the chances that retirees
actually will receive the health benefits they have earned. New federal
accounting rules also may shine more light on this national issue, as all
states will be required to calculate and disclose exactly how much their
health-care costs will be.

During these discussions, it is essential that time is taken to understand
the complex health-care formulas and other variables that are involved when
calculating health-care benefits.

For state employees hired after January 1, 1989, the state requires at least
20 years of service before an employee is considered fully vested and able
to receive up to 100 percent of the average weighted premium of the four
largest health plans offered by the California Public Employees’ Retirement
System (CalPERS). However, even that group does not necessarily receive
100-percent premium funding because it is dependent on whether any one of
the four plans is available in the area where the retiree resides. If not,
then the retiree must pay toward the higher-priced, self-funded health plans
in their area. Also, retirees who are Medicare Part B participants may pay
an additional monthly premium of $87.70 for themselves, as well as another
$87.70 for spouses on the Medicare Part B plan.

According to figures from CalPERS, there are 121,350 subscribers in CalPERS
health-care plans for retirees. About 61 percent, or 74,138 retirees, pay
some amount toward their premiums. The annual out-of-pocket payment from
CalPERS retirees, including those on Medicare, is $63 million a year, or
about $849 per retiree, per year.

The real problem is not retiree health-care costs, but the increased
health-care costs for everyone due to out-of-control hospital costs, lack of
control over prescription-drug costs, and the benefits of new technologies
and people living longer. Some 61 percent of state retirees who contribute
to their health-care costs know that they gave up many other things along
the way to help ensure health-care coverage in their twilight years.

When basic benefits, such as health care in retirement, are jeopardized, the
job of recruiting and retaining competent and loyal state employees becomes
much harder. What’s more, when the state fails to adequately fund health
care for its own retired employees, the burden will fall on our already
strained state social programs.

It would be a crying shame to see this state abandon any public servant who
lived up to his or her promise to serve the people of this state for
decades. Pre-funding of retiree health-care costs is important and honors
the promises made to hard-working public servants.


Support for Capitol Weekly is Provided by: