As the public cost of health care for retired government workers soars, policymakers should explore alternatives, including the Affordable Care Act exchanges.
While the rollout of the federal Obamacare website has not inspired confidence in much of the country, the program ultimately could be a solution for the ever-escalating public cost of retiree medical bills. In the past, health insurance was a big obstacle to early retirement and job mobility for people in the 55- to 64-year age group. Now, those individuals can shop for coverage on California’s new health insurance website, which is working well.
That new option could help state and local governments. State and local governments, school districts and public universities typically provide health insurance to their retired workers until they qualify for Medicare at age 65. Some continue benefits after Medicare age.
Obamacare may make providing health coverage for pre-65 retirees no longer necessary. With the advent of the Affordable Care Act, public workers and governments should explore having pre-Medicare retirees buy health coverage as individuals through the exchanges as an alternative to employer health coverage.
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Retiree health care is a costly benefit. The Legislative Analyst’s Office last month reported that the state general fund will spend $1.8billion this year. That amount will grow by 10percent a year, nearly doubling to $3.3billion by 2019-20. That’s not counting costs incurred by cities, counties, school districts and the University of California.
At a minimum, government officials should explore moving away from retiree health benefits for future hires, and look at alternatives for existing retirees.
In Chicago, Mayor Rahm Emanuel has launched a three-year phaseout of health insurance for most existing city retirees. Workers not yet eligible for Medicare could buy insurance through the state exchange. Many of them would qualify for subsidies.
In cities facing bankruptcy, the cost of retiree health benefits is a major issue. The emergency financial manager in charge of crafting Detroit’s bankruptcy restructuring plan wants to cut retiree health care costs by moving retirees older than 65 to Medicare and giving younger ones a $125 monthly stipend they can use to buy coverage in the exchange.
When Stockton filed for bankruptcy protection in June 2012, officials announced they would end retiree health care benefits after 2013. The city agreed to divide a $5.1million lump sum among retirees who were receiving lifetime retiree health benefits at the time of the bankruptcy filing.
Beverly Hills offers an innovative way to buy out existing retiree health benefits on a voluntary basis. That city sold bonds and used the money to fund a voluntary exchange program, called the Alternative Retiree Medical Program, in which current employees could get a cash payment now – the net present actuarial value of their retiree benefit – in exchange for giving up city-financed health care benefits during retirement. With 58percent of employees accepting the exchange, the city shaved $260million off the cost of unfunded liabilities over 40 years.
Trying to shift existing retirees is a dicey strategy being challenged in the courts. But government should not spend more on post-employment benefits than it pays for people who are working.
Pre-Medicare early retirees and people embarking on entrepreneurial ventures need affordable health coverage until Medicare benefits begin at 65. With the launching of the Affordable Care Act exchanges, employers and workers should analyze new options for retiree health coverage. The current system isn’t working.