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Towns find new ways to save on retiree health costs

Faced with mounting retiree healthcare costs, Connecticut towns are making changes to get out of the healthcare business altogether.

Matt Gallagan, town manager of South Windsor, said they no longer provide health benefits for retirees. Instead retirees can purchase a health plan through the town. South Windsor is one of several towns and cities that have moved away from providing long-term health benefits for their retirees.

South Windsor made several changes in their health policy for both current and retired employees. The town moved to a high deductible health plan for employees and merged health plans with the town’s board of education, which resulted in savings of $2 million per year.

The town also offers health savings accounts to current employees to save for retirement healthcare but they do not offer matching contributions. “It’s lowered our costs tremendously,” Gallagan said.

Westport faced mounting liabilities due to current and retiree healthcare plans. In 2012, Westport faced a $106 million liability for healthcare retirement plans. The payments amounted to 12 percent of the town’s overall budget and per capita spending on retiree benefits was 8 times higher than surrounding towns, according to a 2015 study.

The town switched their new hires into a high deductible health savings accounts and eliminated pension plans for non-union employees after an actuarial report for the town determined that 400 employees had been left out of a 2008 report on OPEB financing. The town suddenly found itself facing much larger liabilities than previously expected and was forced to make drastic changes.

Similarly, Norwalk switched their employees to a high-deductible health savings plan in 2014 and eliminated retiree healthcare benefits for new employees starting in 2013. Instead, the city offers a yearly $600 healthcare voucher for retirees under the age of Medicare enrollment.

That figure drops to $300 when retirees reach the age of 65 when they can enroll in Medicare.

The City of Danbury is also out of the retiree healthcare business for new hires. Mayor Boughton negotiated the change for city employees in 2013, although the deal does not include police and firefighters.

In a 2016 report on OPEB benefits, the Center for Retirement Research at Boston University, determined that nationwide OPEB liabilities totaled $862 billion, two-thirds of which were held by local governments.

Many of Connecticut’s major cities – as well as the state – are facing serious deficiencies in their OPEB funding. A forth-coming study by Stephen Eide on four of Connecticut’s major cities – New Haven, Waterbury, Bridgeport and Hartford – found a total estimated liability of $2.7 billion.

The study also notes that Waterbury is paying more in retiree health benefits that it does for its current employees.

The state of Connecticut faces major liabilities in funding healthcare for its retirees. The 2017 annual comprehensive annual financial report for the state of Connecticut listed $9.9 billion in net OPEB obligations.

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