The staff of a blue ribbon commission on retirement health benefits for state employees is recommending a series of plans to reduce a $15 billion future liability by raising the costs to workers who retire early, increasing the premiums and reducing benefits.
But a representative of the largest employee union called the proposals “shocking” and “disastrous,” potentially leading to a mass exodus from state service.
“The stream of people leaving state government could easily become a flood,” said Sue Esty, legislative director for American Federation of State County and Municipal Employees.
The commission took no action on the proposals but its chairman, Del. Melony Griffith, D-Prince George’s, told its staff to meet with AFSCME to come up with some alternatives.
“We would like to see a commitment to this benefit and how the employees could contribute to it,” as they do for their pensions, Esty said.
The commission was created to deal with new accounting standards that require the state to fully fund future retirement health care. The state puts $314 million in the budget to pay for current retiree insurance, but it needs almost $500 million a year more to fully fund them.
Michael Rubenstein, the legislative analyst working on the proposal, said there was no way to close that $500 million gap “without causing some pain.”
Under current benefits, state employees as young as 50 years old with 15 years service – particularly law enforcement and correctional officers — can retire with a reduced pension but full health insurance benefits both for themselves and for their spouses. They get the same medical coverage as current workers with low co-pays and no deductibles.
Almost one quarter of state workers retire at 55 or younger.
Rubenstein proposed that early retirees pick up as much as 68 percent of the health insurance cost, instead of the current 20 percent, as an incentive not to retire early.
He also suggested reducing the subsidy for spouses of retirees who are Medicare eligible.
Rubenstein also suggested changing benefits for prescription drug costs, which make up over half of the future liability. The state picks up everything over $700 in drugs, so “right now there are no incentives to manage their drug costs,” Rubenstein said.
He recommended coordinating those benefits with Medicare part D coverage.
Esty emphasized that AFSCME this year accepted furloughs, no raises, no step increases and no state contribution to deferred retirement compensation in order to prevent higher charges for health insurance. She also noted that in past years, the state has used hundreds of million in savings from employee health insurance to balance the state budget.
