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County Executive Proposes Bill to Address Retiree Health Care Crisis and Reform

Publish Date: 10/04/2013

Bill Adjusts Vesting Time and Ties County Contribution to Length of Service

 

Annapolis, MD (October 3, 2013) – County Executive Laura Neuman today submitted a bill to the Anne Arundel County Council to address an ongoing crisis of the County’s retiree health care benefits. Among other things, the bill proposes changes to the structure of the county’s retiree health benefit program, ties contributions to length of service, makes changes to credited service for new employees, makes changes to spousal coverage and addresses how the County will participate in Medicare plans.

 

“This problem has been building for years and talked about for years, with no movement,” said Executive Neuman. “When I learned of this problem just weeks into my Administration, I made a decision to work with our stakeholders to solve the problem – together. Every year we put off this problem, the potential deficit grows. Delaying reforms to our retiree health care plan costs taxpayers millions of dollars. The reforms that I am proposing are estimated to save $40 million towards our annual required contribution of $110 million.”

 

This move follows a September 30 letter to employees in which Executive Neuman described the underfunding of the County’s retiree health care benefits. The County has not funded the amount needed to pay the costs of retirees’ health care benefits – commonly referred to as the OPEB (other post-employment benefits) unfunded liability. Consequently, the County needs to set aside as much as $110 million annually to ensure that there are funds available to pay current and future retirees health care benefits. This lack of savings for retiree health care has resulted in an unfunded liability of $1.3 billion.

 

Currently, County employees, their spouses and their eligible dependents are receiving, upon retirement age, a health care benefit for which the County pays 80 percent of the health insurance premium costs. Retirees are eligible to receive that benefit after having worked for the County for as little as five years. Public safety workers are eligible after 20 years of service.

 

One of the key contributing factors that led to this deficit is that health care costs for the County have been growing at a rate of more than two times the rate of the County budget.  This escalation of health care costs, combined with no consistent annual set aside for a fund for retiree health benefits, is forcing Anne Arundel County to make tough choices. “We are not alone,” said County Controller Julie Mussog. “This is a problem shared by other state and local governments, as well as the private sector; we need to address this problem now.”

 

While the retiree health care program does not have an allocated fund, the County’s pension fund, conversely, is stable and earning money. The County’s pension trust has approximately $1.5 billion in assets that are carefully managed and monitored by county employees and outside professional investment managers.

 

Bill Highlights:

 

  • Imposes a longer vesting period for new employees (10 years instead of 5 years)
  • Changes current employees’ County contribution paid on retirement health care premiums: employees with 5-9 years of service will have 30% coverage; 10-14 will have 40% coverage; 15-19 years of service will receive 50% coverage; 20-24, 65%; 25-29 will receive 75%; and 30+ 80%;
  • New employees starting after January 1, 2014, with 10-14 years of service will receive 30% coverage; 15-19, 40%; 20-24, 50; 25-29 years of service, 65%; 30-39 years of service will receive 75% coverage; and employees with 40 or more years of service will receive 80 percent coverage;
  • Suspends retiree spousal coverage if benefit coverage is available from spouse’s employer and meets affordable care standards;
  • For retirees retiring after January 1, 2014, suspends retiree and spousal coverage if retiree or spouse has coverage available from employer;

“I think we have submitted a very fair and thoughtful bill,” said Executive Neuman. “There is no perfect solution. We have worked collaboratively with our stakeholders and have heard from representatives from the County’s collective bargaining unions and a number of County Council members. We understand that a similar bill is being introduced by a member of the County Council. If that happens, we will, without hesitation, support any measure that solves this problem.”

 

After formal submission, the bill to address retiree health care benefits will likely be heard in November.


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