Retiree Healthcare Takes Center Stage

Commission Issues Final Report

MARCH 2013 VOICE: After more than ten months of meetings, research and intense negotiations, the Special Commission on Retiree Healthcare has completed its work. The result is a report containing a series of recommendations that will likely impact both state and local retiree healthcare benefits in the future.

Our Association, along with the AFL-CIO and the Mass. Teachers Association, had seats on the Commission, endorsing the report and its findings. Anne Wass of the MTA served as the Commission’s cochairman, along with former Patrick Administration official Henry Dormitzer.

The twelve-member Commission was formed within Chapter 176 (pension reform law) to address the state’s unfunded public retiree health insurance liability, which now registers at $16 billion for the state and $30 billion for municipalities. According to independent actuaries, once fully implemented, the Commission’s proposal could save upwards of $20 billion over the coming thirty years.

As members know, Association Legislative Liaison Shawn Duhamel represented retirees on the Commission. Andrew Powell from the American Federation of Teachers Mass. represented the AFL-CIO. Through the ten-month process, they served as the lead retiree/labor negotiators, at times meeting daily with Administration officials to iron out the report’s details.
Current retirees and survivors are entirely exempt from the benefit changes recommended by the report. In addition, the proposal exempts and partially exempts various groups of active employees who are at or nearing retirement age.

For instance, any member of Group 1 who is at least 50 years old with twenty or more years of service is entirely exempt from the reforms. Likewise, a current employee age 60, with nine or more years of service, would also be completely exempt.

“In working with labor, our goal all along was to be fair to current retirees and those employees who are nearing retirement age. While long-term changes are necessary, it would be entirely unfair to pull the rug out from under people,” said Duhamel. “None of these changes were easy for anyone to agree to. And, they will impact a good number of current employees, which is a very tough sell.

“The long term state and municipal unfunded healthcare liabilities are $46 billion in today’s dollars. Cost shifting to retirees and employees, along with cutting benefits, is not the solution. Something else needed to be done, and it was important for retirees and labor to work together toward a solution.”

Eligibility and Proration

Of all the recommendations made by the Commission, the most controversial is likely the requirement that non-grandfathered active employees and all new hires must work a minimum of 20 years in order to be eligible for retiree health insurance benefits. Currently, employees qualify for a pension and full health insurance benefits at 10 years of creditable service.
Going forward, impacted employees will still vest for a pension at 10 years, but if they work less than 20 years, they will not be eligible for retiree healthcare benefits. In addition, impacted Group 1 employees cannot retire with their health insurance until age 60 (55 Group 2 and 50 for Group 4).

“The minimum service and age requirements were the toughest reforms for us to accept. By anyone’s standard, twenty years is a very long time,” explains Powell. “Most people understand that some changes are necessary to protect the benefits going forward, but they must happen in a fair manner.
“We also fought to make sure that retirees would not pay more than 50% of the insurance premium. It does no one any good to have access to insurance that you cannot afford to pay for.”

Under the proposal, those impacted employees with 20-22 years of service pay 50% of the total premium. The premium would then be prorated for service between 23 and 29 years. At 30 or more years of service, the impacted employee is eligible for the maximum benefit provided by the employer, which for new state retirees is 80% of the premium.

“Eligibility and proration were the two areas that we struggled the most with. Traditionally, all retirees received the same healthcare benefit whether you worked 10 years or 40. The idea of proration is designed to reward career employees with a higher benefit level,” explained Duhamel. “Despite the average being 75/25, we still have communities paying just 50/50. We do hope that these communities will revisit this issue and contribute a higher amount for their career employees.