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Our Retiree Health Care Benefits

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The Fight is On

Retiree Health Benefits Are 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 big reasons for this are longer life spans and the growing number of worker retirements.

Another reason is increased use of health care services and prescription drugs. As people age, they tend to develop chronic conditions, such as hypertension, arthritis and diabetes, which require treatment on a regular basis. They’re also more likely to need expensive hospitalization due to an acute or life-threatening illness, such as cancer, heart attack or stroke.

Fighting Cuts in State after State

None of this information is news to AFSCME councils, locals and retiree chapters. They’ve been fighting threats to retiree health care all across the country — in Maryland, New York, Hawaii, Illinois, Ohio and California. In these and other states and localities, 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 age of eligibility for retiree health care; and increasing the years of service needed to qualify.

Public employers’ concerns over higher health costs could soon be reinforced by new accounting rules, which will require them to calculate their costs for all future retiree health care. 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.

The GASB Monster

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.

The new rules, set by the Government 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 of them 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.

The city of Duluth, Minnesota, claims its total retiree health care obligations will be around $178 million — high relative to its annual budget. “It’s not the fault of the workers,” the mayor told The New York Times. “The people here who’ve retired did earn their benefits.”

Media, Employers Overstate GASB Problem

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 health care coverage — that’s a fact,” said AFSCME President 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? In my estimation, that’s the death of retirement security in America.” According to McEntee, taxpayers should recognize this and join in solidarity with public employees to protect workers’ rights.

“Governments have been managing their obligations pretty well up to now, and GASB is only asking for bookkeeping changes. So if they try to use GASB to justify cutting retiree health care, we will fight them all the way,” he said.

Good Reasons to Preserve Public Retiree Health Care Benefits

  • Workers sacrificed wages in order to win retiree health benefits. They earned them and they deserve them.
  • Politicians promised the benefits. They could have funded them in advance, like pensions, but decided not to. Now, it’s their obligation to find a way to fulfill their promises — by raising revenue if necessary.
  • Unfunded future obligations occur in many government functions, including Medicaid and prisoner costs, but GASB doesn’t address them. Retiree health care shouldn’t be singled out for special rules.
  • If GASB set standards for including the value of roads, stadiums and buildings on government balance sheets, those assets would offset long-range obligations for retiree health care.

GASB methods tend to overstate liability for health care by making unfounded assumptions about future inflation and benefit levels, which are almost impossible to predict over the long term.

These and other arguments were laid out at a recent International Union seminar on GASB for council and local union contract negotiators. “We want to be sure that our affiliates are fully prepared for the fights ahead,” McEntee said. “Wherever our members’ benefits are threatened, AFSCME will be ready.”

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