State
labors to meet benefits-for-life vow
Health tabs for retired workers soar
Monday, October 18, 2004 • BY DUNSTAN McNICHOL
• Star-Ledger Staff
Last summer, when Lynne Ewen stepped down after 35 years
as a Spanish teacher at Bernards High School, one of her
retirement benefits was the promise of health insurance for
life, compliments of New Jersey taxpayers.
The lifetime health insurance is currently provided to
about 81,500 retired teachers and public employees who
worked at least 25 years.
"I can tell you from my friends that we stayed in longer
as teachers to reach our 25 years," she said. "By the same
token, we certainly have earned it. We worked hard for the
children of the state."
It is a plum of a benefit, unmatched by most private
companies and more generous than all but one-quarter of
other state plans, according to a recent study.
It is also becoming a crippling cost to the state.
This year's budget includes $911 million to cover
retirees' health benefits. That's more than the state spends
on the Homestead Rebate property tax relief program for
senior citizens.
The tab is expected to top $1 billion for the first time
in the upcoming budget year -- five times what it was just
five years ago. And without changes, it will surge past $2
billion in 2007, according to projections by the nonpartisan
Office of Legislative Services.
"We're creating a monumental obligation for
post-retirement medical benefits," said state Sen. Peter
Inverso (R-Mercer), a longtime critic of the way the state
has funded the health plans.
State treasury officials say they know this is a big
problem, especially when the state has a budget gap
estimated at $4 billion.
"We recognize employee and retiree benefits represent a
significant burden on present and future budgets," state
treasurer John McCormac said through a spokesman. "We are
examining several options to contain growth and control
costs."
McCormac's spokesman, Tom Vincz, declined to say what
the state is considering.
The health care tab for retired public workers is
skyrocketing for several reasons. Medical insurance premiums
are on the rise. Coverage is generous. More and more public
employees are retiring. And the state no longer has a pot of
cash set aside to help defray the cost each year.
A decade ago, Gov. Christie Whitman, needing money to
help pay for her income tax cut, abandoned the practice of
building up a savings account to help defray future costs of
the retiree insurance premiums. Instead, she began simply
paying each year's premium bill as it arrived. In addition,
she used the existing $400 million medical insurance nest
egg to pay the health care premiums for 1994 and 1995.
"I would say these are tax-cut chickens coming home to
roost," said Jon Shure, president of the liberal think-tank
New Jersey Policy Perspective, which has critiqued state
fiscal policy. "We went through the second half of the 1990s
in state government with the attitude that we'll pay for
everything tomorrow and cut taxes today. It didn't seem
plausible at the time and now it's been proven to be bad
fiscal policy."
In the state's 1993 budget, the last one before Whitman
changed the funding rules, retirees' health costs accounted
for $247 million in a total budget of $14.6 billion, about
1.7 percent of state spending. That figure included money
that was set aside for the future. This year's $911 million
tab nearly doubles the retiree medical health insurance
burden on the budget.
The maneuver also had a long-term impact. When the state
was setting money aside to cover future retiree premiums,
the long-term cost of having to pay the medical benefits was
pegged at $2.26 billion. That has swelled to $16.8
billion.
"This is the problem with a cash-basis budget," said
Inverso, who opposed Whitman's fiscal maneuver a decade ago.
Whitman's former treasurer and the architect of the plan,
Brian Clymer, could not be reached for comment.
There are other reasons why the bill for retiree medical
benefits has gone up an average of 32 percent each year
since 2000.
During the past five years, the number of retirees
receiving state health insurance has jumped from 56,000 to
nearly 81,000. The cost of medical insurance across the
nation has soared. And the state's retirees have a
gold-standard insurance program, according to a consultant
hired by the state to assess the program last summer.
"The state health benefits program's annual per-employee
medical and dental costs were highest among all peers,
regardless of plan type," the study by Mercer Human
Resources Consulting concluded.
The consulting report suggested administrative changes
to cut costs through better case management and
disease-prevention initiatives. The study also noted that
New Jersey's plan requires far lower co-payments by retirees
than retirement plans at other states and in private
business.
The state's powerful teachers' union is lobbying to make
sure retiree benefits are not cut.
Since 2002, the New Jersey Education Association, whose
teachers account for two-thirds of the retirees covered by
the state-funded health plans, has pushed for legislation
that would prohibit lawmakers from changing the health
benefits plan by requiring retirees to pay bigger
co-payments, or instituting cost-saving initiatives such as
managed care.
A bill that would lock in the current health benefits
package for teachers who currently have at least five years
of experience is pending before lawmakers.
Dunstan McNichol covers state government. He can be
reached at dmcnichol@starledger.com or (609) 989-0341.
© 2004 The Star-Ledger. Used by NJ.com with
permission.
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