Wednesday, March 23, 2011

Health and Pension Savings

The State Workers United coalition, which includes the Delaware State Education Association has been meeting with representatives from Governor Markell's Administration to see if there could be a meeting of minds around cost savings in health care and pension. The discussions have gone well.

Unfortunately, the details of the discussions were prematurely leaked to the News Journal today. Therefore, we have scrambled to put together a summary of the agreement before people see it in the paper tomorrow. What follows is our attempt to do so.

These proposals have been agreed upon by representatives of the Markell Administration and State Workers United for a Better Delaware, aka, the Coalition. They must still be incorporated into the state’s FY12 Budget, i.e. approved by the Joint Finance Committee and the General Assembly.

The Governor’s budget called for $100 million in savings over five years to the state’s cost of employee benefits. The Coalition’s interest was to protect pension and benefit plans so that the benefits are not diminished and are sustainable for the career state employees and their families.

The savings these changes represent amount to $128.06 million over the next five years. And these savings will continue to increase incrementally into the future.

New state employees only:
Move from 3% to 5% for employee contribution towards pension
Vesting to qualify for pension after 10 years, up from five
Increase the penalty for retiring early from .2% to .4% (the penalty that existed in the early 2000’s)
Change the normal retirement age to age 65 with 10 years of service; age 60 with 20 years of service; 30 years of service at any age (Current is age 62 once vested; 60 years with 15 years of service; and 30 years of service at any age)
Eliminate “double-state share” where the state provides full health care benefits for spouses when both are state employees. For new employees, one spouse will be primary.
Lengthen the time to qualify for state share of health care in retirement from:
50% state paid at 10 years of service; 75% at 15 years; and 100% at 20 years to –
50% at 15 years of service ; 75% at 17.5 years; and 100% at 20 years (same as now).

Pension health care changes for current state employees and future state employees:
Future retirees will pay 5% of the Medicare Medigap coverage provided by the state, or approximately $21/month. At present, the state pays 100% of this coverage, resulting in a more robust benefit for Medicare retirees: pre-Medicare retirees pay the employee share of health care costs as well as co-pays and deductibles. Once retired, Medicare recipients pay nothing for the state health care supplement, nor do they pay for co-pays and deductibles.

Health care cost increases for current and future state employees:
While the group is still fine tuning the specifics, the consensus proposal regarding establishing a cost share for employee health would likely increase the employee cost share on the basic plan from 0% to 5% of the premium. With respect to the PPO plan – the state’s most generous plan – this proposal would increase the employee cost share from approximately 12.7% of the premium to around 13.5%.

First State Basic Plan – Currently only 560 state employees (less than 1%) are enrolled in this plan.
This plan will no longer be free but will cost $25.73/month, or 5% of its cost.
Aetna HMO – Plan cost will increase between $1.43/month for single employee to $5.19/month for Family.
BlueCARE HMO – Plan will increase between $1.46/month for single employee to $5.47/month for Family plan.
Comprehensive PPO Plan – Fifty-three percent of state employees are enrolled in this plan.
This plan’s cost will increase $4.59/month for single employee; $9.73/month for employee and spouse; $7.76/month for employee and children; and $12.17/month for Family.

27th pay for FY2012
As you have most likely heard, the Governor has put in his proposed budget funds for a 27th pay period for next year, thanks to the anomalies of our pay calendar. It should be noted that school districts may object to paying the local portion of the additional pay.

The group is also recommending to the JFC and the General Assembly to include in the state budget language providing for a 2% pay increase effective 2012-2013 – keeping part of the money from the 27th pay in the state budget for salary. This would offset the increase in pension contribution from new employees and provide current employees with a 2% raise.

Other considerations – More savings are being discussed
Finding savings – The Coalition recommended that the State review its contractual arrangements with insurance providers to maximize discounts it can obtain. The State has acknowledged savings $9.26 million in savings over the next five years in prescription drug discounts alone.
The Coalition also suggested that it could realistically and without causing any harm adjust some of its actuarial assumptions regarding pension costs. These recommendations will be considered by the Pension Board at its March meeting.
The Coalition suggested that these savings be used to continue to fund the OPEB Trust Fund, the fund that pays for pension health care costs. Unlike one’s pension, retiree health care is not guaranteed by the state. The OPEB Trust Fund exists to help the state prepare for future pension liabilities. The state has committed to using a portion of any savings from adjusting actuarial assumptions for OPEB.

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