Pearce predicts $150 million savings on retired teachers health care costs

Beth Pearce and Howard Dean at the Statehouse last year. Photo by Nat Rudarakanchana

Beth Pearce and Howard Dean at the Statehouse last year. Photo by Nat Rudarakanchana/VTDigger

The state expects to save $150 million in long-term health care costs for retired teachers, thanks to a new program that maximizes use of government subsidies and pharmaceutical discounts for prescription drugs.

The state will received enhanced Medicare subsidies for low-income retirees, which will help to lower overall expenditures for prescription drugs through the state health insurance plan for retired teachers.

Meanwhile, the state’s 7,000-plus retired teachers will not see a change in prescription drug benefits as a result of the new program, according to State Treasurer Beth Pearce.

The Vermont State Teachers’ Retirement System board approved the plan last week. The state treasurer’s office, the Vermont-NEA, the Vermont Health Educational Initiative and BlueCross BlueShield of Vermont created a partnership to develop the new waiver plan, which will go into effect on Jan. 1.

“When we can lower the cost to taxpayers without making benefit reductions for retirees, it’s a win-win,” Pearce said in an interview. “When we’re working together we can get good things done.”

Jon Harris, chair of the board, said in a statement that the waiver plan will “financially bolster the retirement system and help ensure important benefits remain intact for retirees.”

The new Employer Group Waiver Plan for retirees who qualify for Medicare will save the state about $2.3 million per year on top of $1.5 million in other annual government subsidies. Over time, the $3.8 million in annual savings will result in long-term savings for the pension fund for retired teachers.

“Less money has to go out of our system, that’s how it reduces the unfunded liability,” Pearce says.

The state’s unfunded obligations for long-term health care costs for retired teachers is $827 million over a 25-year period. According to the latest actuarial analysis from the treasurer’s office, the new waiver plan will reduce that liability by 18 percent $150 million, based on actuarial calculations for fiscal year 2012.

Harris compared the savings to paying down a 30-year mortgage. Paying down the principal ahead of schedule lowers costs over the long haul.

“It’s almost too good to be true, we kept wondering where’s the shoe going to drop, but as we researched it, it made sense,” Harris said. When all the parties studied the fine print, it became apparent that as long as BCBS could handle the administrative details, the waiver plan would work.

Health care plans for retired teachers have long been underfunded by the state and the annual expense has eaten into funding for pensions. The teacher retirement system is currently funded at about 67 percent.

Even though the Vermont-NEA and the Douglas administration reached a deal in 2010 to increase the contribution from teachers through a variety of concessions, the unfunded portion of the pension system has continued to increase. The Vermont Legislature set aside $4.75 million in fiscal years 2013 and 2014 to help stem the erosion of the fund, but that amount plus contributions from employees hasn’t been enough to cover the growing cost of health care for retirees.

Pearce has long been an advocate for increased state funding for the pension system, and her office will ask lawmakers this legislative session to make a larger investment in the retiree system. She says money invested now will have a big payoff down the road. If the state invested $20 million in the pension this year, for example, it would save taxpayers $58 million over the life of the program, Pearce says, though she declined to say just how much she will ask lawmakers to set aside for teachers’ pensions this legislative session.

Her sales pitch could meet with a less than enthusiastic reception this coming legislative session. Budget-writers will be faced with a $50 million gap right off the bat (the hole was filled with one-time funds in fiscal year 2014), plus an assortment of pending cuts to a wide range of federal programs. Tax revenues, meanwhile, have stayed flat.

“We need to balance all of our priorities and recognize that paying now rather than down the road is a good bang for the buck for taxpayers,” Pearce said.

The state treasurer is also pursuing cost-saving programs offered by the federal government. Her office recently received $4.5 million in one-time reimbursement funds for retiree health care expenditures.

“Over the years, we’ve been very proactive in Vermont in terms of looking at our long term liability and working with the Legislature to make sure the pension program is secure,” Harris said.

The new Employer Group Waiver Plan is a program of the Center for Medicare and Medicaid Services. The Affordable Care Act and other changes to federal law have made the program easier for insurance companies and administrators to implement and more cost-effective for employers, according to a press release from the treasurer’s office.

Vermont is the only state that has a third party administrator that is a partnership between a teachers’ union and a school boards association, according to Harris. VEHI works with BCBS to keep costs down, he said.

Anne Galloway

Comments

  1. Sandra Bettis :

    I find it hard to believe that we will save money when an ins co is involved – usually any time that anything is privatized, it costs more as private companies are only interested in their bottom line.

    • Peter Everett :

      Sandra: You really believe that a government run program can be run more efficiently than a private program? The State is a Monopoly, living off taxpayers. The State Government has shown, time and again, that it has absolutely no regard for the burden it places on taxpayers when it comes time to raise taxes. Government sees you & I as bottomless pockets, there for them to dig into without regard for those of us that fund their inflated programs.
      Competition, something Montpelier will never allow, is what will bring private costs down. Why should only several ins co.s be allowed to sell programs in a state? Open it up to all co.s that wish to compete for our business. You’ll see savings, just like auto, home and life ins. Bundle healthcare with other policies for savings. Government regulates far too much.
      By the way, in the good old days, Liberal stood for Liberty, which is a form of freedom. Now, Liberal stands for regulation after regulation. What is your choice, Sandra? Mine is the old form.

      • Sandra Bettis :

        Uh, that is what we have now. Ins cos selling ins for profit. Does it work? Uh, no.

  2. MJ Farmer :

    The state’s unfunded obligations for long-term health care costs for retired teachers is $827 million, so we are now saving $150 million. Where is the resulting $677 million going to come from? Bankruptcy like Detroit?

    • VT sends $70 million a year to institutions like Citigroup and Bank of NY Mellon (both engaged in mortgage fraud among other “ethical lapses”) to pay off the interest on bonds. If we instituted a state bank, which could act as bond handler, we could keep that money in state.

      • John Greenberg :

        Gary Murphy:

        The $70 million figure you’re quoting is composed mostly of principal and interest payments on the money that Vermont borrowed by issuing bonds. Most of these bonds are not held by banks (other, perhaps, than in mutual funds) but are rather owned by wealthy individuals and companies who otherwise would pay Vermont income tax on the interest. They’re the folks who benefit from the tax-free status of these bonds, in exchange for which benefit, the State gets to borrow more cheaply. Presumably, unless a State bank were to actually purchase ALL of Vermont’s bonds, the same amounts would flow through IT to the owners of the bonds.

        I’m sure a small fraction of this amount is held by whatever bank actually processes these transactions (unless the State does so itself) as a fee for the service of getting the right amounts to the right owners, and that fee could go to a different bank. But that fee has got to be a lot closer to $1 million than to $70 million.

        • John Greenberg:

          Thank you for calling me out. When I researched and found the $70 million figure, I did not research further and assumed that it was all going big banks but further research has shown me that is not necessarily a correct assumption. I have not yet determined how much of the payments go to individual investors and how much goes to the banks but I do know that banks have bought more of the bonds than you appear to think. According to the 2012 state treasurers report, there were 6 bond issues totaling $226 million which were sold to Citi, J.P. Morgan Securities and Morgan Stanley. The interest rates on those bonds range from 1.43% to 2.99% with the average being 2.12%. The result is that the state is paying Wall St. banks $2 million/year for interest payments on bonds issued in one year. That does not include any payments that might be transmitted to banks for bonds issued by VMBB or VEDA.

          I did find the $70 million figure was only interest payments on all the outstanding bond debt the state of VT owes. There was no indication that principal was any part of that. Unfortunately, I did not bookmark where I found that so I can not provide you with the link. Sorry. I believe it was somewhere on the state treasurer’s site. Since I cannot be sure what part of the $70 million goes to banks, I will quit using that figure.

  3. Sandra Bettis :

    The State of Vermont right now has all of its money in TD Bank, a bank that supports fracking. A state bank would not only keep our money in VT but get rid of that little problem also. The contract is coming up for renewal soon…..

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