SERA Medicare Advantage Questions
SERA Presentation to the Public Employees Health Care Reforms Committee
By Robert Kopasz
Thank you, Madame Chairwoman and members of the Committee. My name is Robert Kopasz and I am Chairperson of the Michigan State Retirees Association Coordinating Council, commonly know as the SERA Council. With me today is Alvin Whitfield, SERA s Legislative Committee Chair.
First, please allow me to tell you about SERA. It is an organization composed of some 14,000 retired state employees and/or their spouses dedicated to advocating for and protecting the pensions and benefits of retired state employees. We have twenty-one chapters throughout the state extending from Lapeer to Muskegon and from Adrian to Marquette. Our membership is very diverse in terms of political orientation and occupational talents. Our membership ranges from retired doctors, lawyers and secretaries to janitors, power plant operators and automotive mechanics, just to name a few. The commonality of our group lies in the fact that we are proud retirees of the State of Michigan seeking to maintain and maximize the purchasing power of our pensions and not having it eroded through increases in our health care costs.
It should be noted that there has been a paradigm shift in the emphasis of SERA in carrying out our mission in recent years. For many years, our primary focus was on securing adjustments in the pension of selected groups in our organization. Essentially, we were interested in obtaining increase adjustments in the pensions of those older state retirees who because of the good fortune of longevity have seen the spending power of their pensions eroded. As you know, pensions are based on years of service and final average compensation multiplied by a factor. Those members, who in the sixties, seventies, and eighties had much smaller salaries on which their pensions were based, are now seeing inflation erode the spending power of those pensions. While we were successful in obtaining a pension adjustment for pre-1987 retirees some twenty-two years ago, we have been unable to obtain subsequent needed adjustments. Thus, a number of older retirees are really hurting financially.
But with the alarming increases in health care costs, we have shifted our organizational emphasis from fighting for pension increases to protecting the health care benefits of our members and preventing the erosion of their pensions through additional co-payments and co-insurance. As we all know our pensions are constitutionally protected from being diminished. However, there is no such protection afforded retirees from having the spending power of their pensions diminished by significant increases in the co-payments and co-insurance related to their health care benefits. A relatively small percentage increase in the amount of these items can have a significant impact on the spending power for other necessities of life for many of our members. We believe the State of Michigan has a moral obligation to fulfill the “Promise” that was made to now-retired employees of the State while they were active employees. Abandoning the Promise” in the twilight years of a retiree s life is, in our opinion, unconscionable. One of our major concerns about HB 5345 is that it may have unintended consequences which will work to the detriment of SERA members.
From our understanding of HB 5345, it is written primarily from the standpoint of active unionized employees. The bill does not appear to address the concerns of current state retirees who have no official advocate in the health plan selection and cost determination process. Health benefit plan design is critical. The state retiree health plan design has for decades been tied to the health plan in effect for active state employees. Even so, SERA s input is sought and considered prior to final health care plans for retirees being authorized by the Department of Management and Budget and the Civil Service Commission. We, as an organization, have an ongoing dialogue with Civil Service and the Office of the State Employer staff regarding any issues or concerns. While our opinions and concerns may not always be accepted, we know that they are seriously considered and we are given an explanation of how and why final decisions were made. This interaction permits us to better inform our members and gain their acceptance of changes in plan design and cost impacts. Our input has been sought by the Civil Service Commission for various changes in Healthcare coverage, examples include: 1) In 2003 changing the State Health Plan basic/major medical to the State Health Plan PPO (saving over $20 million annually), 2) In 2004 the State introduced the Support Program for durable medical equipment (estimated savings of over $5 million to date, 3) In 2006 a Medicare Part D subsidy program was implemented for retirees (savings averaging $22 million annually, 4) In 2008 the State moved to a Medicare Advantage Plan (estimated savings of over $40 million), 5) In 2009 increases in co-pays, deductibles and premium increases resulted in savings of nearly $47 million for retirees alone. These savings total nearly $280 million that the State has saved over the past 8 years. We have provided input and worked closely with Civil Service staff to communicate and explain to state retirees any and all health care changes to the State’s Health Plan.
Contrast this method of input by our organization to what it will be under HB 5345. Our members will not be represented by unions in the negotiating process. We will be part of a huge group of public agency retirees whose health benefit plan selection and costs will be determined by a nameless and faceless group of individuals who are isolated from input from our membership by a politically established board consisting of only one representative for all retirees. The institutional knowledge regarding those factors that may impact the current level and costs of benefits will be meaningless. For example, the fact that the most elderly and vulnerable state retirees have not had a pension adjustment in 22 years will be irrelevant in determining the cost and plan design of the plan that is chosen for them. Nor will the fact that state employees who are now retired gave up various pay increases through the years in exchange for health care enhancements.
House Bill 5345 and the white paper” speaking to this Public Employee Health Plan refer to various programs that should be included. It should be noted that most Active state employees and retirees participate in most of those plans at the present time. In the Prescription Drug area we participate in the following: Generics preferred, Drug Quantity Management, Specialty pharmacy, Prior Authorization, 3-tier drug plan ($10, 20 & 40 co-pay retail and $20, 40 & 80 mail-orders). In the State Health Plan the following programs are included: Preventive Services (Physical exams, Immunizations, Blood screening, Mammography, Colonoscopy, PSA etc.), Weight Loss Benefit, Cardiac Rehabilitation, Diabetic training, Coordinated Care Management (Asthma, Diabetes, Congestive Heart Failure & Ischemic Heart Disease), Support Program (Durable Medical Equipment), Wellness, Smoking Cessation and Disease Management.
When I discussed my appearance before this Committee with committee staff, I was asked whether we supported or opposed HB 5345. My response at that time was that we neither supported nor opposed it because there were too many questions/issues remaining to be answered and resolved. The following are some of the questions/issues we believe need to be answered in order to allow a complete and shared understanding of the pooling concept embodied in HB 5345:
The opinion of the Legislative Service Bureau legal staff suggests that the bill may be unconstitutional as it applies to state employees/retirees in that the approval of compensation and benefits for this group is the sole responsibility of the Civil Service Commission. We would strongly encourage this Committee to clarify and settle the constitutional question as it relates to state employees/retirees raised by the LSB attorney as soon as possible. It would be impossible for me to convey to you the level and degree of anxiety that exists among our most elderly members over the issue of their health benefits caused by the introduction of HB 5345. It is needless and inconsiderate to put these elderly individuals through this high level of concern if HB 5345 is not applicable to them.
The bill allegedly will create a $900 million savings. How realistic and accurate is this purported saving and to whom will the saving accrue? I believe Mitch Bean of the House Fiscal Agency suggested it would require actuarial experts to drill down and verify the soundness of the $900 million dollar figure. Obviously the significant savings is the driving force behind the bill, so this is a critical factor for which there should be a definitive answer regarding its soundness and viability. This issue appears to be a threshold decision point. Adding to the confusion and anxiety of state retirees is a report prepared by Public Policy Associates, Inc. a respected national research firm. The report s findings (by Researcher Doug Drake) is diametrically opposite in terms of the amount of savings generated by the pooling concept. A comparison of the two reports indicates a $1.7 billion dollar gap in the amount of savings to be generated. We would hope that actuaries and/or other independent experts could review how the savings figure was arrived at and make an initial determination of its soundness before the bill is acted upon. Parenthetically, we are at a loss as to why there has been no legislative fiscal agency analysis done on HB 5345 as is normally done when a bill reaches this stage in the legislative process.
Another concern/issue about this plan is whether or not government entities that currently do not provide health benefits for employees/retirees will be forced to do so? If so, where will these entities obtain the funds to address these benefits?
Another lynchpin in the concept embodied in HB 5345 is that creating a larger pool of employees/retirees would enable vendors to give greater cost reductions as a result. As we understand pricing structures, there are various plateaus established between which no cost reductions are realized until the next plateau is reached. Hopefully, there is evidence that having over 400,000 individuals in the health care pool is well above the threshold level for the realizations of additional savings. Again, it would appear that actuarial experts could confirm the veracity of this concept.
The issue of unfunded liability appears to be a very complicated one. Each of the governmental entities will have various levels of unfunded liability. How will the pooled plan assure that the unfunded liability of each entity is eventually funded and that the financial structure for the pooled group of employees/retirees will be fiscally sound and not create a problem of gigantic proportions in future years? Will one of the unintended consequences of HB 5345 be a tremendous financial drain on the State of Michigan? This is a question of paramount importance.
As you can see, SERA still has some serious misgivings about the viability of HB 5345.While we have not taken a position either in support or against the bill, we have a healthy degree of skepticism. It is our belief that a bill with a myriad of complexities as this one should not be rushed but move slowly and with extreme caution. It should be carefully and thoroughly vetted by attorneys, financial, and actuarial experts. We would suggest that the experience of other states in pooling should be cautiously examined to make sure that there is a sound basis for any comparisons made between those states and the State of Michigan. Cursory comparisons of cost alone without looking in-depth at the details such as similar structures, plan designs, laws, financing, etc. could be fatal.
I sincerely hope this presentation has positively contributed to the dialogue regarding the viability of HB 5345. Given the several unanswered questions and our expressed concerns, SERA must withhold support of HB 5345 until such time as a clearer picture of the resolution to the issues raised emerges. It would seem that there should be other legislation (yet to be introduced?) that may have an impact on this far-reaching concept. Perhaps the introduction of the complete package of bills in support of HB 5345 will serve to clarify some of our concerns. We will continue to watch the progression of this bill.
We would be pleased to answer any questions you may have.