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The Fight is on: Retiree Health Care Under Attack

AS THE POPULATION AGES and the baby boomers head into retirement, the nation seems to be entering a new era of retirement insecurity. First came efforts to privatize Social Security. Then came attacks on public and private pension plans. Employer-paid retiree health benefits — critical to old age security for thousands of AFSCME retirees — have also been under attack, largely due to rising costs. Annual double digit inflation has become routine. Two reasons are longer life spans and growth in worker retirements.

FIGHTING CUTS. None of this is news to AFSCME councils, locals and retiree chapters. They’ve been fighting threats to retiree health care all across the country — in Hawaii, Illinois, Maryland, New York and Ohio. In these states and others, employers have tried, and often succeeded, in shifting costs to retirees.

They’ve done it by increasing retirees’ premiums and other co-payments; reducing benefits; raising the eligibility age for retiree health care; and increasing the years-of service needed to qualify.

ACCOUNTING CHANGES. Public employers’ concerns over higher health costs could soon be reinforced by new accounting rules. Now, most public employers publish only their current- year expenses for retiree benefits, which most fund on a pay-as-you-go basis. But starting in 2007, they will have to show all retiree health costs on their books, including future obligations for today’s employees.

Even though most of the money won’t be paid out for decades, employers’ full liability will have to be estimated and printed on their balance sheets. AFSCME’s afraid that publication of these long-range obligations — which will appear to be enormous, could trigger new and unreasonable efforts to cut benefits.

GASB MONSTER. The new rules, set by the Governmental Accounting Standards Board, known as GASB (gazbee), will be followed by virtually all states and localities. When similar rules were established for private-sector employers in the early 1990s, a startling number of companies canceled their retiree health benefits. Most feared their stock prices would fall if millions in unfunded obligations suddenly turned up on financial statements.

GASB is causing the same sort of shock waves in the public sector. Though GASB rules won’t require jurisdictions to actually pre-fund future benefits, governments think that merely showing them on their books will alarm taxpayers and lower bond ratings.

Maryland recently assessed its retiree health care liability, claiming long-term obligations of over $20 billion — more than the state’s annual budget. Michigan, with estimated obligations of nearly $30 billion, is already considering benefit cuts.

NO CRISIS. While most media stories paint the issue as a crisis, AFSCME thinks the GASB panic is overstated and should be put in perspective. “Retirees need healthcare coverage — that’s a fact,” said AFSCME Pres. Gerald W. McEntee. “Public employers should set an example — protecting workers rather than reserving even more resources for tax cuts and other advantages for the wealthy.

“If governments abandon their employees on health care and pensions, can any worker expect better treatment?” According to McEntee, taxpayers should recognize this and join in solidarity with public employees to protect workers’ rights.

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