Marty: A possible cure for insurance poverty at the county

Marty Richman

A while ago, I wrote pointing out that San Benito County and its employees were insurance poor. The cost of retiree healthcare had crippled finances to the degree where, according to the county, there was upwards of $80 million dedicated to this benefit, but it was still $37 million in arrears – not counting the unfunded commitment to current employees.
The problem needs a solution. One possibility is a retirement health insurance buyout plan, but it is not a slam dunk.
The following data as of December 2013 does not include dental or vision because neither benefit is available to retirees. The 2014 costs have increased.
In 2013, the county’s total health insurance premiums were $5,134,000 for 304 active employees and 195 retirees. Overall, employees and retirees funded $335,650 (6.5%) of the premiums and the county funded $4,798,150 (93.5%).
The groups had different plan distributions. Active employees selected single person coverage 36% of the time, retirees 55%. Two-person coverage was selected by 26% of employees and 31% of retirees. Family coverage was selected by 38% of employees, but only 14% of retirees and there are Medicare reductions; therefore, employees, on average, contributed more to premiums than the retirees did – $2,800 a year versus $478 a year. The county paid an average of $11,180 per employee and $7,700 per retiree. 
The 1.56 to 1 worker-to-retiree ratio adds to the problem and it could get worse. Leveled by cost factors, the county paid health benefits as if it had 400 employees, but it only has 300 on the job. This means there is little funding available to increase the take-home pay of the present employees or to offset premium increases.
A buyout involves potential risks and rewards for both sides. The rewards for the county are elimination of an ever-growing long-term and uncontrollable obligation in exchange for a cash payout; however, one has to find the cash and that could involve borrowing and interest payments. Then there is litigation – a group opposed to the buyout could mount an expensive legal challenge. Finally, new laws could go either way; long-term healthcare obligations could be eliminated and others restored by the legislature in spite of any agreement. We must also to be mindful of influencing the risk pool regarding future premiums.
Any buyout proposal would have to be widely accepted, have a complex formula, and address past, present, and future obligations based on previous plan selections to prevent people from cherry-picking a plan after the fact.
The rewards for the retirees and employees are large cash payments, perhaps a few hundred thousand dollars each, and flexibility – the current premiums can only go to healthcare. What if you do not need supplemental insurance or a procedure that is not covered, or need house payments more? The risk is that you may not be able to get supplemental insurance later at a good rate and some of the buyout may be taxable.
The fact that 165 (84%) of retirees have selected a plan option that has no employee premium may be because getting it free is a major factor. They may have other adequate health insurance or more economical supplemental insurance available, but since county coverage is free to them, they have no incentive to decline the basic insurance.
A cash buy-out could provide that incentive. Naturally, the county would have to get a substantial discount on plan liabilities in today’s dollars in exchange or it will have no reason to put that option on the table. It’s an idea worth investigating. 

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