Tonight council voted to reduce the 50% health insurance payment for pensioners of the village.
From RES 00-03825 Green sheets:
At the June 23, 2009 workshop, the Village Council voiced concerns regarding eliminating the 50% subsidy of health premiums for employees age 65 or older. Per the 2008 Comprehensive Annual Financial Report (CAFR), the annual expense for Post Employment Benefits for the Village was $2,777,654. Eliminating the 50% subsidy of health premiums for employees 65 and older would reduce the Village’s liability in this area by 80-90%. If this benefit change had been in place in FY08, the expense would have been between $277,000 and $555,000 for a reduction of $2.2 to $2.5 million. These calculations are based on an estimate from the Village’s actuary. A full actuarial valuation will need to be prepared to determine the exact expense amount. In addition, the audit partner from Sikich LLP told staff that the Village has the largest OPEB expense of all his municipal clients.
This is a pretty big deal for the village. GASB45 requires that all Other Post Employment Benefits (OPEB) get accrued and booked. DG was one of the better munis at doing this, but we were only contributing about 60% of what was required for full funding, enough to pay for what we needed, but not enough to fully fund future obligations. Last year Budget Director Judy Buttney sounded the alarm saying it would become a problem if not addressed. With GASB45, the Village would soon be required to account for 100% of the unfunded liability associated with this expense.
Those public employees are also eligible for medicare once past 65, and it’s medicare that can already pick up most the health bills for seniors. So while the monthly impact for sub-aged 65 retirees may be steep, it’s not permanent. Medicare and supplemental (not secondary) insurance should cover the bases.
Are our public employees getting the shaft on this? Doubtful: according to the Village’s health insurance consultant, DG is the only community that maintained this level of benefit. Now DG is in line with most other communities.
The full Village of Downers Grove Personnel Manual is available here. It begins on page 6 of 58.
While I applaud the Village for a proactive stance on an ever bloating liability this issue will resolve itself courtesy of Obamacare.
If the “Public Option” proceeds as outlined, likely in our now unilaterally run government, private insurance could very well be extinct within 10 years. Private companies, who now provide the supplemental coverage we are talking about here, will be hog tied by mandates and unable to compete with the Free government plan and fall into the proverbial tar pits. We will all then be treated to coverage and care identical to Medicaid and Medicare.
How ironic is it that muni government gets retired and active employees off it’s budgets but we all get to pay for everyone’s, legal or not, health care via the Feds?
This was a prudent and effective step to reduce over head with in the village. It is not easy to take benefits away from people, but steps need to be taken in order to immerge stronger and more competitive in this new economy.
What they were doing required a team of actuaries to estimate the probable cost of insurance for a group of people for the next 20 years. If it can go up 20% in one year what the heck will it cost in 2029? And the village is required to fund that future cost.
It’s easier and cheaper to offer retirees a fixed monthly dollar amount for a defined period that they can use to purchase a Medicare supplement if they wish.
Was the old system replaced with something like that, or just eliminated?
GASB45 was biting the village’s fiscal requirements in the behind. Current Budget Director Judy Buttney brought this up as a budget impacting issue last year. I had brought it up at an October 2006 Coffee with the Council, and was assured by then VM Pavlicek that OPEB (other post employment benefit) provisions were already being addressed by the village and that my concerns were understandable but not valid. Turns out she was wrong, my concerns were valid, and were shared by Buttney. A fiscal liability without a corresponding source to pay for it.
From the village supplied 2008 budget materials:
So DG had an actual annual funding expense that started at $3 million this year and would grow larger each year. In 2007 the budget set aside $250,000. Starting with a clean sheet in 2008, at that rate DG would amass $20 million in unfunded liabilities within 5 years, which would directly and negatively impact our debt rating, make our costs of borrowing higher, and create a big expense item in the budget when DG can least afford it. This was a big problem.
The key operating word for now is “was”. The change eliminated up to 90% of that fiscal obligation moving forward.
The pertinent section of the Employee Manual (page 17) now says this: