BOSTON — State and municipal employees would have to wait until they are older and put in more years of service to qualify for retirement health benefits under a proposal being embraced by the Patrick administration to cut future benefit costs by $20 billion over the next 30 years.
Gov. Deval Patrick intends to file a retiree health benefit reform plan as part of his fiscal 2014 budget proposal in January that will include the recommendations of a commission that has spent the past nine months reviewing retiree health care costs, said Jay Gonzalez, the governor’s budget chief. He called the plan a “very significant change.”
“In order to present a fair retiree health benefit for employees we need to change the system and the benefit to make it affordable over time and that’s what this reform aims to do,” said Gonzalez, the governor’s secretary of administration and finance.
A commission studying retiree employee health care costs voted 11-1 last week to recommend an increase in the age and years of service required for a state employee to be eligible for health care coverage in retirement.
Shrewsbury Town Manager Dan Morgado, a representative on the commission of the Massachusetts Municipal Association, was the only vote against the recommendations.
The final report adopted by the Commission to Study Retiree Healthcare and Other Non-Pension Benefits recommends increasing the age of eligibility for the majority of state employees in Group 1 from 55 to 60, in line with changes made in 2011 to the state pension system.
The commission also recommended increasing the required years of service in state or municipal government from 10 years to 20 years for an employee to qualify for retirement health benefits. The state currently pays 80 percent of a retiree’s health insurance premiums. Under the new proposal, an employee with 20 years of service would be reimbursed 50 percent of their premiums costs, increasing to 80 percent for those with 30 years of service or more.
The changes would save the state and municipalities $20 billion over the next 30 years, according to Gonzalez, who said the state’s current health benefits for retirees are “among the most generous in the country right now.”
The commission estimated the total unfunded cost of retiree health benefits at the state and local level if the system remains unchanged at $45 billion to $50 billion over 30 years.
The changes, if approved by the Legislature, would be applied to current employees, with some carve-outs and exemptions for those close to retirement. Gonzalez said he thought the package had “a very good chance of passing.”
“This is a strong recommendation of strong reforms to our retiree health benefit structure that will help put the state and municipalities on a path to fiscal sustainability,” Gonzalez said.
The commission was created as part of the pension reform law signed by Patrick in November 2011, and included representatives from the MMA, the AFL-CIO of Massachusetts, the Retired State, County and Municipal Employees Association, the Patrick administration, the Treasury and the House and Senate.
“We all realize this is a very real challenge and real problem we needed to get our arms around and be part of the solution, said Shawn Duhamel, a commission member representing the Retired State, County and Municipal Employees Association. “I think the proposal that has been put forth that was largely the product of the AFL-CIO and our association achieves not only $20 billion in savings for the next 30 years but provides long-term protections for our members.”
Duhamel called the final recommendations a “tough sell” to many members of his association who will see that $20 billion in savings come out of their pocket.
“Given the situation we face, there isn’t a perfect solution, but we’ve done our best,” Duhamel said.
Employees with 20 years of service who are within five years of retirement age would be exempt from the changes, as would employees within five years of qualifying for Medicare eligibility who are within one year of vesting for health benefits.
Teachers participating in Retirement Plus who are 57 or older and are eligible for their maximum retirement benefit would also not see any change to their benefits, and those on disability retirements would be exempt until January 2014 when national health reform kicks in, offering new subsidies for their insurance.
Gonzalez and Duhamel also said the proposal seeks to protect those current employees close to retirement. Employees aged 50 or older with 15 years of service, or 55 and older with 10 years of experience would be eligible to have 50 percent of their health premiums covered in retirement.
While the state currently covers 80 percent of retiree health premiums, cities and towns are free to negotiate their own premium sharing agreements with employees and retirees. The commission’s report will recommend that municipal contribution levels be frozen for a period of three years after the law is enacted, and would prevent communities from changing those rates in the future for existing retirees.
The Massachusetts Municipal Association raised concerns about the restrictions on negotiating premium splits in a statement.
“The MMA opposes a recommendation to permanently freeze the health insurance contribution rate for retirees once they retire,” the agency said in a prepared statement. “This unaffordable provision would prevent cities and towns from making adjustments to a major budget item in order to adapt to changing fiscal conditions and would offset a significant portion of the potential savings in many communities.”