Retiree Health Care > Rexroad.com

The issue to retiree health care relates directly to the labor issues in the City of Woodland.

The Legislative Analyst has even set up a website dedicated to news and information about this issue. It is one of the premier issues in the state right now.

View it here.

Comments

By Rich Rifkin @ Wednesday, April 11, 2007 9:59 PM

Matt,

Does Woodland face the same mess that Davis is looking at?

I don't know if your readers saw my Enterprise column on this subject. If any are interested, this is what I wrote about public retiree health care in Davis:

----

Imagine you own a small business. You hire a 55-year-old to work in your office for $2,500 a month. After five years she retires. And you are socked with a bill for $421,433 for her free lifetime medical insurance.

Sound crazy? Absolutely.

No sensible business would ever take on such a liability. Yet the city of Davis and most other local and state governments and school districts across the country are doing just that.

But it's not only for one or two workers. It's for every employee who retires with the city.

Currently, Davis is paying the medical bills for 143 retirees. That is costing us $1.05 million this fiscal year, up from $750,000 two years ago. Not one penny of that money was set aside when the people who are receiving this benefit were working for the city. We expend every dollar of the retiree medical benefit on a pay-as-you-go basis.

The average cost per retiree for Davis is now $7,329 per year. It's actually $10,316 for the retirees who have a spouse or dependent and $5,169 for those who are single. Over the next 20 years, we will pay almost $300,000 per retiree.

The problem is not so much the million-plus dollars a year that we are paying now. (That, by the way, wipes out most of the revenue from the parks tax.) The problem is what's coming down the road.

Medical insurance premiums continue to rise at a rate far greater than general inflation. According to the Kaiser Family Foundation, the cost of health insurance rose by an average of 10.2 percent per year from 1998 to 2005. Over that same period, general price inflation rose by 2.4 percent per year. The city of Davis will pay 11.95 percent more next year for its health premiums than it is paying now.

Also, people are living longer and retiring younger. A white female who retires at age 60 can expect to live to 85, a white male to 81.

Davis firefighters are eligible to retire with full benefits at age 50. Police officers also can retire at that age, but they must pay half of their medical premiums until they are 60. All other city employees get free retirement medical benefits at age 60, but must pay half from 55 to 59, if they retire that young.

Further, the number of employees who will be receiving this unfunded benefit from the city is growing. While Davis is paying for 143, 25 more will soon join the list. And ultimately, all of the city's 475 permanent workers will retire. In about 13 years, the number of retirees from the city of Davis will double.

Assuming that inflation for medical insurance stabilizes at 5 percent per year — double-digit annual increases are unsustainable — I estimate that the city will pay more than $3.2 million for retiree medical benefits 10 years from now and close to $9 million a year a decade after that. If we stay on this same course for 30 years, the taxpayers can expect to pay out $24.3 million annually for this one perk.

While not one cent of this long-term liability currently appears on the city's balance sheet, that will change in 2008, when new accounting rules, known as GASB-45, force the city to report where things stand.

Unless the City Council addresses this issue soon, the cost of retiree medical care is going to force the city to lay off employees, cut back on maintenance or eliminate whole programs.

Paul Navazio, the finance director for the city of Davis, explained to me that he is well aware of this ticking time bomb.

"You can't go to a conference on city management without discussing how you deal with this issue," Navazio said.

In his office late last week, Navazio told me various options that he thinks the city and its labor unions might consider: eliminate the benefit entirely for all new hires; limit or eliminate the spousal benefit; make current workers pay into a fund that will help to cover this cost down the road; and increase the number of years a worker must be employed by the city before he is eligible for this benefit.

As of now, a person needs to be with the city for only five years to obtain free medical premiums for life after he retires. If that were increased to 25 years, a significant part of the problem would go away.

Also, Davis should consider capping the inflation value of this benefit. If the cost of premiums rises more than general price inflation in a given year, the retiree could be expected to pick up that added cost.

Whatever the solution, the council needs to start thinking about this issue. So far, it has never been on the agenda of the City Council or the Finance and Budget Commission. The longer this problem is ignored, the harder it will be to come up with an equitable solution.

— Rich Rifkin is a Davis resident; his column appears every other week. Reach him at Lxartist@ yahoo.com

-----

Note: Shortly after this column appeared in the Enterprise, the City Council decided it was important and they put it on their agenda as a discussion item. They are still a long way from taking any action, however.

You must be logged in to post a comment. You can login here