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

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