Retiree healthcare changes in Connecticut union deal may set bad precedent

The agreement negotiated between Gov. Dannel Malloy and government union leaders contains a provision that would provide healthcare for retired state employees through Medicare Advantage.

Comptroller Kevin Lembo originally suggested the idea and House Republicans included it in their budget.

Connecticut is essentially self-insured when it comes to state retirees, paying out of pocket for 100 percent of the insurance costs for state retiree healthcare. The switch to Medicare Advantage is estimated to save the state $130 million per year.

But the inclusion of the Medicare Advantage switch in the deal with government unions may hamper future lawmakers’ ability to make administrative changes to the way Connecticut handles retiree healthcare.

Because the change is being included in a negotiated contract between the governor and union leaders, some Republicans, like Rep. Christopher Davis, R-Ellington, worry that it “sets up a situation where it would have to be negotiated in the future,” essentially limiting administrative options for future lawmakers.

House Republicans included the change in their budget as part of Republicans’ “non-negotiated state employee savings,” arguing that because it was an administrative change, it didn’t require negotiations with union leaders.

If the proposed deal is approved by the legislature, all that may change and set a precedent for Connecticut’s future.

The state of Connecticut estimates the cost of retiree healthcare will be $731 million in 2017, surpassing the cost for current employees. That figure is expected to grow to $864 million – $120 million more than current employees – by 2019.

Jared Schmitt, on the budget staff for the Republican caucus, said that because the state is self-insured, taxpayers take on all the risk of paying for those healthcare costs. The Medicare Advantage plan would be administered by United Healthcare, which, along with Anthem Blue Cross Blue Shield, handles the medical insurance for current employees.

“They have a lot of experience doing this,” Schmitt said. “And so they’ve created economies for themselves and in the end created economies for ourselves because we save a significant amount of money,” Schmitt said.

Schmitt went on to say that the collective bargaining agreement only negotiates health and welfare benefits for retirees but does not stipulate how the state must administer those benefits.

Until 2009, Connecticut did not save any money for retiree health benefits nor did they require employees to contribute toward their future health costs.

Part of the 2009 concession deal negotiated between Gov. M. Jodi Rell and union leaders included a 3 percent payroll deduction for current employees to help pay the costs of retiree healthcare. Employees only have to make that payment for ten years.

This provision was expanded upon in the 2011 concessions agreement negotiated between Gov. Dannel Malloy and the unions. Beginning in 2017, the state will match the contribution of state employees to the Retiree Health Care Trust Fund.

The Republicans highlighted potential savings from making legislative and administrative changes to state employee benefits that they say would not require negotiation with state employee unions.

Those legislative changes include making statutory changes to pension benefits in 2022 when the current union benefits contract expires. Those changes would include raising the pension contribution to match the national average of 6 percent, eliminating overtime from pension calculations and moving new employees onto a defined contribution 401(k)-style plan.

House Republicans estimate the total savings from all those non-negotiated changes to equal $1.1 billion per year.

But some of those savings may not be possible if the current concessions deal, which was approved by the House, passes through the Senate. Under the terms of Malloy’s 2017 concessions agreement, the current benefits contract, which stipulates how pensions and other benefits are set, would be extended to 2027.

The combination of state employee pensions, healthcare and debt service – known as “fixed costs” – make up 31 percent of Connecticut’s operating budget and are expected to continue growing.

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