New federal health mandates will limit much-needed pension reform in Maryland, as the state grapples with a ballooning $15 billion in health benefits promised to current workers and future retirees.
Maryland offers a generous health care plan to employees that cost the state roughly $884.6 million in fiscal 2010 and cost employees $237.2 million. The state’s share is expected to grow by $159 million next fiscal year, according to the state Department of Legislative Services.
Maryland pays more into employee health plans than 28 other states, according to the National Conference of State Legislatures.
The state typically pays 95 percent of medical claims for current
employees, after premium contributions, co-pays and out-of-network payments are calculated, according to Gabriel Roeder Smith & Co., the state’s benefits actuary.
Other plans similar to Maryland’s cover 83 percent of claims, the company estimated.
State officials agree that Maryland can no longer fund its lofty benefits promises. The state has been falling behind on its benefits payments for the last decade, generating a deficit that has grown to $15 billion. Add to that the state’s $18 billion in underfunded pension liabilities, and Maryland has a looming $33 billion problem that lawmakers are now trying to fix.
But a commission appointed by the state to find reform is finding little wiggle room when it comes to health benefits.
“It seems to me that the state’s hands are very much tied under the circumstances that we haven’t been funding health benefits,” said Barbara Hoffman, a member of the pension commission. “As a state how do we deal with that, in terms of the huge unfunded liability?”
Maryland cannot cut costs by cutting expensive health benefits if the state wants to “grandfather” its system under the new federal mandates.
Adhering to a “grandfather” clause potentially would be cheaper than instituting all the new health mandates, but the federal legislation
bars states from clipping state employees’ health benefits — even in states like Maryland that already largely comply with new federal mandates.
Dozens of states are running into the same wall, said John Goodner, a consultant with the state’s actuary.
“This all seems like balancing act,” Hoffman said. “And we still don’t know how much our hands are tied in changing anything.”
