Duping your bosses for your benefits


According to a New York Times story yesterday retiree health benefits for public employees are endangered.  Yet that’s not what one county’s CFO told his bosses only last year.

Local Governments Take Budget Knife to Retiree Health Plans

As cash-strapped U.S. cities and states struggle to address gaping budget holes, a long-honored benefit for public-sector workers has come into the cross-hairs of budget cutters: retiree health insurance.

A growing number of states and cities are eliminating or reducing health coverage for retirees, a benefit that has long fallen by the wayside for most private-sector workers.

But the coverage, which has meant that most retired public workers have all their medical bills fully paid, is expensive and hugely underfunded. And because health coverage does not typically have the strong legal protections that hamstring changes to public pension benefits, it is easier for governments to scale back.

The trend could leave millions of public workers with thousands of dollars in unanticipated healthcare costs.

“In 20 years, very few people will have this benefit,” said Dennis M. Daley, a public management professor at North Carolina State University in Raleigh, North Carolina.

New York Times, October 15, 2012

Yet in 2011 when Union County decided to cover 100% of retiree health benefit costs for approximately 650 non-union employees the board of freeholders were told by then Chief Finance Officer and soon-to-be retiree, Lawrence Caroselli:
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And the board bought it.

For a fascinating insight into how this lifetime-health-benefit giveaway came to light:
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11 responses to this post.

  1. Posted by Tough Love on October 17, 2012 at 1:22 pm

    A few thoughts:

    (1) Does the 100% retiree healthcare coverage include those ALREADY retired? If so, they gave up no raises, nor any “consideration” whatsoever, so why should they get this benefit.
    (3) Clearly the recent zero raises were justified in their own light (with many Private Sector taxpayers doing far worse in recent years). Those “zeros” were not there to have their financial effect reversed in this way.
    (3) Even IF (and that’s a big if) you could somehow link the zeros to the healhcare premium giveaway, the inconsistency between the payers and receivers to big enough to drive a truck through. E.g., how much (in zero raises) is the near-future retiree giving up in exchange for free LIFETIME healthcare.
    (4) Mr. Caroselli said they “they will set aside enough money in each budget to offset this cost”. What nonsense, “offset”, with what ? It’s an incremental Taxpayer-funded cost …period.

    Reply

  2. Posted by Anonymous on October 17, 2012 at 2:43 pm

    There is one aspect that I doubt most people realilze or even want to acknowledge. When a retiree turns 65 Medicare becomes the primary insurer no matter what. So to say that the benefits are lifetime are somewhat misleading. Another way the public is misled is by implying that every government worker is entitled to life time benefits upon retirement..
    In the past a public employee needed to work at least 25 year to be entitled to the benefits. I believe that ended in 2007-08. Retirees who did not have 25 years by 2007-08 would now have to pay for their benefits i they want to continue them upon retirement. In some cases this would be very expensive.

    Reply

    • 1) True, costs of these benefits assume that Medicare will pick up a majority of the cost at 65 but remember – this is Medicare we’re talking about which most politicians view as shakier than Social Security. What happens when Medicare benefits get cut yet these obligations remain on Union County’s books?

      2) 25 years may be required for some plans but each locality obviously has discretion as to who they give these benefits to since it’s their (i.e. the taxpayers’) money. If they want to put in a one-year of service requirement (assuming they haven’t already done so as part of another golf-fee-hike resolution) what would stop them?

      Reply

    • Posted by Tough Love on October 17, 2012 at 5:08 pm

      The cost of Medicare Supplement policies can be $500 (per person). That’s not chump-change either. I’m sure Private Sector retirees paying for it out of THEIR pocket would love to get it FREE.

      Reply

  3. Posted by TREEeditor2 on October 17, 2012 at 3:11 pm

    The horror of this unfolding story in union county govt about the 450-650 non-contractual employees getting free lifetime heatlh benefits was that after this was exposed, a Mr joe selemme of a labor consulting firm paid by the UC and Bibi Taylor, the finance director of union county govt stood at the microphone at 2 freeholder meetings and stated that this was no different than the agreements put in place with the other 20 union and collective bargaining units at union county govt. In essence giving close to all 3000 employees at union county govt an offer of free health benefits for life.

    Plus as noted in posts before, the freeholder vote to give the 650 employees free lifetime health benefits was illegal since at least 2 freeholders have relatives on the payroll that would gain from this, creating a conflict of interest. The freeholders voted for it anyway, since in thier eyes laws, integrity and justice do not apply to union county govt.

    Reply

  4. Posted by Larry Littlefield on October 17, 2012 at 7:16 pm

    “There is one aspect that I doubt most people realilze or even want to acknowledge. When a retiree turns 65 Medicare becomes the primary insurer no matter what. So to say that the benefits are lifetime are somewhat misleading.”

    Which is why the repeated description of retroactive pension enhancements and incentives allowing earlier retirement as “costing nothing” was particularly fraudulent. You often ended up with a huge percentage increase in years of health insurance funded in retirement before Medicare picks up some of the tab.

    From three years of pre-Medicare health insurance with retirement at age 62 to ten years with retirement at age 55, as under the early 2008 deal for NYC teachers.

    Reply

  5. Posted by eatingdogfood on October 18, 2012 at 5:34 pm

    Bankruptcy Baby! Thank You, Democrats!

    Reply

  6. Posted by Go India, YEAH!!!!!! on October 18, 2012 at 11:24 pm

    Medical care in the US is expensive because of government regulations. To see the future of medical see this:

    Indian Hospital
    http://www.aljazeera.com/programmes/indianhospital/

    Reply

  7. Posted by Al Moncrief on October 19, 2012 at 6:09 pm

    (Sorry, not entirely on this topic . . . but, FYI:)

    COLORADO GOV. HICKENLOOPER RAIDS PENSION FUNDS FOR CORPORATE WELFARE.

    COLORADO PERA BOARD CONFIRMS THAT THE PENSION PLAN FACES NO “ACTUARIAL EMERGENCY.”

    PERA BOARD GRANTS ACCESS TO PERA TRUST FUNDS TO PRIVATE BUSINESSES IN COLORADO.

    From PERA’s website:

    “We heard from businesses around the state during the development of the Colorado Blueprint that increased access to capital is critical to their success and that of our state’s economy,” said Gov. John Hickenlooper. “The creation of the Colorado Mile High Fund will improve that access to capital and we are pleased that Colorado PERA’s partnership will benefit and help grow companies here in Colorado.”
    It is not logically possible for the PERA Board to claim that the PERA Trust Funds have faced, or face, an “actuarial emergency” in recent years and simultaneously enter into an arrangement in which the investment performance of those PERA Trust Funds may be compromised (to any degree.)

    News flash for our “businessman” Governor: By definition, placing an artificial, political restriction on investment options for a portion of the PERA Trust Funds (regardless of size) denies PERA members and retirees the benefit of the most productive use of those funds. Interference with the work of Colorado PERA’s investment team is ill-advised and the burden of restoring any resulting loss of capital will fall on Colorado taxpayers.

    From the Colorado PERA statutes:

    “As fiduciaries, such trustees shall carry out their functions solely in the interest of the members and benefit recipients and for the exclusive purpose of providing benefits and defraying reasonable expenses incurred in performing such duties as required by law.”

    Is the provision of corporate welfare through the “Colorado Mile High Fund” in conformance with the fiduciary obligation of the Colorado PERA Board of Trustees to act “for the exclusive purpose” of providing PERA pension benefits? How does this scheme guarantee improved investment performance for this tranche of the PERA trust funds for beneficiaries? I believe this action represents yet another clear breach of fiduciary duty by the PERA Board of Trustees.

    Does the Governor understand that the PERA Trust Funds belong to the beneficiaries of the trust? Does the Governor understand that the PERA Trust Funds are not public property to be used to meet public policy goals? (Politicians have been trying to gain access to this “pile of money” for decades.)

    If the members of the PERA Board of Trustees would grow a backbone and resist political interference, we might have avoided the recent SB 10-001 debacle, the breach of retiree contracts, the “legal morass” it engendered, and this most recent assault on the integrity of the PERA Trust Funds.

    If Colorado businesses are desperate for capital why do these businesses not take advantage of available historically low market interest rates? Is it simply the case that these businesses are considered too great a risk by private lenders? This risk must be assumed by the beneficiaries of a public pension fund? Public pensions should be forced to invest in businesses that the private sector won’t touch?

    “The Colorado Mile High Fund will be a new pool of growth capital for investments in Colorado businesses. Over time, the amount of money available for such emerging entrepreneurs and management teams has diminished in Colorado, and PERA saw the mutual benefit providing much-needed capital for Colorado’s business community,” said PERA Director of Alternative Investments Tim Moore.

    How is it the responsibility of Colorado PERA members and retirees to redress this shortfall of funding for Colorado entrepreneurs by accepting a less favorable risk/reward ratio for a portion of their PERA Trust Fund property?

    “This is good for Colorado and for PERA,” added PERA Chief Investment Officer Jennifer Paquette.

    The duty of the PERA Chief Investment Officer is not to achieve what is “good for Colorado,” or “good for PERA” administrators. The duty of the Chief Investment Officer is to invest the PERA Trust Funds prudently . . . and in a manner that offers the greatest return potential at the least portfolio risk.

    However, I believe that Paquette’s statement here is politically necessary for her, and I find it sad that the PERA Board places her in this situation. Paquette should be left alone to do her job free from political interference. I believe that if she could speak freely, she would state, as an “investment professional,” that the artificial limitation of investment opportunities for a tranche of PERA’s trust funds is NEVER “good” for the beneficiaries of the Trust Fund. I place only a modicum of blame for this blossoming fiasco on Paquette. I understand that as a condition of employment she must do the bidding of an invertebrate PERA Board.

    If the geographical restriction of PERA Trust Fund investment options is a prudent investment philosophy will the PERA Board please explain why this policy has not been in place at Colorado PERA for decades? Why the artificial, geographical restriction of investment options is summarily rejected by securities industry professionals?

    How did the PERA Board go about determining the geographical investment boundaries that offer the greatest risk/reward potential for the investment our funds? What analysis was conducted? What advantages did Colorado’s borders offer over limiting investment of the funds to venture capital or private equity opportunities in Massachusetts? California? Australia?

    Complete PERA propaganda available here:

    http://www.copera.org/pera/about/latestnews.htm#ColoradoFund

    Reply

  8. This is a different issue from the core pensions. The real costs of lifetime health benefits only run to age 65 when Medicare kicks in and should be primary. The benefit is then worth only the equivalent cost of a Medicare supplement and part D for drugs – much less than the full cost of insurance. This issue has not been prperly addressed but the benefit should be properly costed and paid and gradually phased out

    Reply

    • Posted by Tough Love on October 22, 2012 at 11:18 am

      Quoting …”The benefit is then worth only the equivalent cost of a Medicare supplement and part D for drugs – much less than the full cost of insurance.”

      But STILL about $500/month per person ($1,000 for a couple).

      It being “much less”, how about the Public Sector workers fund that for Private Sector Taxpayers.

      Do I hear a “NO” …. well then PAY FOR YOUR OWN.

      Reply

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