City Retiree Health Costs Crippling Worcester

Monday, April 16, 2012

Walter Bird Jr., GoLocalWorcester Reporter

Faced with a $765 million bill that won’t go away for the next 30 years – and will probably grow larger – Worcester is struggling to deal with the mammoth cost of health care for retired employees.

Not even the steps officials have already taken to keep what city manager spokesperson Christina Andreoli calls one of the city’s “budget busters” have been enough to control what many see as uncontrollable under current practices.

“Worcester has done a good job trying to control health costs,” said Carolyn Ryan, police analyst for the Massachusetts Taxpayers Foundation (MTF). “It is still a huge and unaffordable problem.”

The reality is no matter what local communities do, it will not be enough – not with the cost of retiree health care and benefits rising faster than inflation.

“At some point, we’ll need the support of the state Legislature through broader health care reform,” City Manager Michael O’Brien said.

Retirees aren’t insensitive to the problem, but they’re also not happy with some of the steps Worcester has taken to address it. Requiring all Medicare-eligible retirees to enroll in Medicare, for example, did not sit well with Virginia Ryan, a retired city school teacher and activist. She also belongs to the Coalition of Worcester Retirees.

“We saw the city pushing us onto Medicare,” she said of a move Worcester took, and the MTF recommended, before it was required to. “About 400 of us didn’t go on it because the city plan was pretty good.”

Staggering costs

While unpopular with some retired employees, that move was part of a larger bite taken out of a deficit that had reached $1.48 billion. It has been reduced to $765 million, which most everyone agrees is unmanageable. But even when the city put Medicare-eligible retirees on Medicare, it allowed about 1,000 of them to retain their existing city health plans, which cost an additional $2 million for retirees and city taxpayers.

The impact isn’t just felt at City Hall. Single-family homeowners are being crushed under the weight of a burden that isn’t going away anytime soon. The average single-family homeowner’s share of the city’s $765 million tab over the next 30 years, under current projections, is $11,600 annually. That figure grows every year, however, Carolyn Ryan said.

That scenario is why reforms will continue, even if all city retirees won’t welcome them with open arms.

“I have tremendous respect for our retirees and the work they’ve done,” O’Brien said, vowing not to let the issue dissolve into “us versus them.”

Nonetheless, “…these reforms will allow us to continue to reduce our liability,” he continued, expressing hope that by the end of this year, the $765 million will have been reduced by another $100 million.

That would be accomplished by having more retirees move off the conventional, city plan to a different health plan.

A statewide problem

Worcester, of course, is not alone in facing a seemingly insurmountable mountain of debt in retiree health benefits.

According to the state Executive Office for Administration and Finance (EOAF), the cost of retiree health benefits for public employees in Massachusetts is among the five highest of the 50 states and more generous than the benefits available to more than 90 percent of private employees in the Commonwealth. Additionally, the total unfunded liability for these benefits is estimated to be more than $40 billion for state and municipalities combined.

The state has not sat idly by. As part of the pension reform bill signed into law in November 2011, the Retiree Health Care Commission was established. Among its charges is to file a report of recommendations and proposed legislation, if any, no later than Nov. 30 this year. The commission held its first meeting April 5. The chief item on its agenda, according to a document provided to GoLocalWorcester by the EOAF: “Discussion of how best to continue to provide quality healthcare to long-term public employees when they retire, while preserving core services.”

In a statement released to GoLocalWorcester, Lt. Gov. Timothy Murray noted the accomplishments already made in combating the overall rising costs of health care.

“Gov. (Deval) Patrick and I are committed to supporting municipalities with a range of resources to protect and improve the delivery of local services,” Murray said. “Municipal health care reform is proving to be an effective tool for cities and towns. To date, the reform has generated over $50 million in savings for employees and municipalities.”

‘Crushing burden’

The MTF addressed the problem in January in an alarming report entitled “The Crushing Burden of Municipal Retiree Health Care Liabilities.” According to that report, the “skyrocketing” costs of employee benefits rose from 13.5 percent of statewide municipal budgets in 2001 to 20 percent in 2010. By 2020, nearly a third of all local budgets will be constrained by those costs by 2020 – unless changes are made.

That, Carolyn Ryan acknowledged, is the Catch-22 many communities face.

“Worcester has done a fair amount of work that they’re allowed to do under current state law,” she said. “They’ve taken some general cost-saving measures for health insurance, which have impacted retiree health care costs.”

Implementing municipal health care reforms for the fiscal 2012 budget, before pension reform, was one of those measures. The move aligned the city’s health plans similar to what state employees receive. Still, the MTF put forth several other recommendations in its report, including tying employee health benefits to the length of employment, similar to pensions; raising the eligibility age for health care benefits; increasing eligibility hours and pro-rating benefits for part-time employees; no longer providing benefits for spouses and dependents; and reducing the municipal share of premium contribution rates.

“They’ve done general cost-saving measures for health insurance, which have impacted retiree health care costs,” Carolyn Ryan said, noting the city’s increase over the past five to six years in the contributions made for early retirees and its implementation of higher co-pays.

“They’ve made progress,” she continued. “But even with that they have an enormous, unfunded liability.”

Single-payer healthcare

And they have people like Virginia Ryan who don’t think the city should have taken some of the steps it has.

“I do disagree with some of them,” she said. “(Retirees) pay more than anyone else. Anytime there are changes to the system, retirees get (the short end of the stick).”

Virginia Ryan supports a move away from the current healthcare system toward a so-called “single-payer” form, something Vermont is poised to do by 2017. She is particularly enamored with a bill co-sponsored by state Sen. Jamie Eldridge, D-Acton, and state Rep. Jason Lewis, D-Winchester. Entitled “An Act Establishing Medicare For All in Massachusetts,” it would move the state toward a single-payer system, essentially taking health insurance companies out of the question.

While he admits the bill will not pass in this legislative session, Eldridge believes it an essential step toward freedom from the enormous costs associated with such things as retiree health care. Under his bill, “There would no longer be healthcare paid for by employees and employers,” he said.

Instead, payroll taxes would increase and the very wealthy would see a rise in capital gains taxes. Under the current system, said Eldridge, there is too much administrative waste.

“For every premium dollar, about 30 cents of that dollar goes to the insurance company for things like marketing and salaries,” he said. “On the hospital side, you have hundreds of people just processing health insurance company paperwork.”

Cost controls

While his bill likely won’t see the light of day this session, Eldridge said another, focusing on health care cost control, probably will be passed. Proponents of that legislation, he said, are trying to move away from a fee-for-service system, which they claim leads doctors to conduct more tests and examinations and issue more prescriptions, to one that would provide a fixed amount of money to a medical practice.

“My concern with that,” said Eldridge, “is when you’re talking about a fixed amount of dollars for medical practices and doctors, are these still some costs in that system that will lead some patients to not being treated well.”

There is a near consensus among most that, whatever the solutions, the current system is broken and if left unrepaired, astronomical costs such as Worcester’s with retiree health care will drown most cities and towns. In the meantime, officials must try to balance deficits with a need to continue providing benefits and health care to their retired – and retiring – employees.

“This about recognizing there’s a limit to what taxpayers can afford, but realizing our responsibility to retirees and that many of them are living on a fixed income,” City Manager Mike O’Brien said. “We need to have a difficult debate and dialogue statewide.”

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