Legislature(2001 - 2002)
03/19/2002 08:05 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 380-REIMBURSE CERTAIN RETIREE MEDICARE CHARGE CHAIR COGHILL announced that the next order of business was HOUSE BILL NO. 380, "An Act relating to reimbursement for certain Medicare premium charges for persons receiving benefits from the teachers' retirement system, the judicial retirement system, the elected public officers retirement system, and the public employees' retirement system." Number 2530 GAYLE HARBO, Retired Teacher, testified via teleconference. She began by saying that HB 380 is an important issue for Alaska's seniors. She provided the following testimony: Many of us, when we reached age 62, applied for social security and found that because of two federal provisions - the Government Pension Offset or the Windfall Elimination Provision - we either did not qualify to receive social security on our own or through our spouse, or we were eligible for an amount much smaller than we had anticipated. At age 65 all seniors must apply for social security because of Medicare. The payment of Medicare Part B is mandatory, and since the most recent 11 percent increase in 2001, it costs a bit over $600 a year. There are at least three scenarios which apply for TRS and PERS retirees applying for Medicare: · You can apply for social security and be eligible and then Medicare Part B is deducted from your monthly check; or · You can apply [for social security] and you're denied and you have a spouse on social security and the [Medicare] Part B is deducted from your spouses social security check; or · You can apply and be denied. You have no spouse, so you have to send in your payment for Medicare Part B. This third scenario concerns me most because as we know ... many seniors are on fixed incomes and as they age have many additional costs simply caring for their home, if they have one, and for themselves. This additional burden of having to pay more than $600 a year in mandatory medical insurance costs, and, more importantly, having to remember to write a monthly check or annual check, just doesn't seem right. I'm not sure what happens if a senior forgets to write a check. Our seniors who devoted their lives to living and working and caring for children in Alaska deserve more. Also, in terms of cost of this provision, when our retirees reach 65, and Medicare becomes the primary health coverage, there's a tremendous savings to the state in monthly health care premium per retiree, yet the burden of an additional $50 per month for the retirees is worrisome because of the fixed income of most seniors, and because there's no guarantee the monthly cost of Medicare Part B will not increase. In the late '60s public school teachers, the school districts, and the state each contributed 7 percent of salary, a total of 21 percent, to fund the retirement system for TRS. Later this was changed and the employee contribution for TRS is now 8.65 percent, but the total for the other two entities is paid for by the employer, and it's only a little over 11 percent. In 1999 the actuary for [the Division of] Retirement and Benefits (R&B) estimated the cost to fund Medicare Part B would require only .68 percent, that's less than 1 percent, [increase] in the employer contribution. This would still make the employer share less than the 14 percent of 30 years ago, and remember the cost for funding the Medicare Part B reimbursement would be amortized over a period of 20 to 25 years. ... in a most recent actuarial report of June 30, 2001, it shows that there may be in this next year, for 2004, a one-time bump in the employer contribution because R&B submitted a new data system. However, the projected future employer contributions still show a level of less than the 30-year goal of 14 percent. I hope you will give careful consideration to this very important legislation for Alaska's seniors - they deserve it for their years of service to the state and the school districts. Thank you once again for your time. Number 2752 SARA HORNBERGER, Chair, Anchorage Chapter, Retired Public Employees of Alaska; Life Member, National Education Association - Alaska; National Education Association - Retired, testified via teleconference. She informed the committee that she has been involved in public education since 1963. She also informed the committee that she is a retiree under TRS and PERS. Ms. Hornberger recalled that during her time at Naknek school, a representative from TRS visited the school almost annually. During the early '70s the TRS representative related the message that once retired, in addition to retirement pensions, medical insurance for retirees would be completely paid as part of the retirement under the state's retirement funds. In 1974, Ms. Hornberger resigned her position with Bristol Bay school and thought she probably wouldn't teach again and thus decided to withdraw her retirement funds. A TRS representative discouraged her from such because he said once she reached retirement age and hadn't withdrawn from the retirement system, Ms. Hornberger would secure her medical insurance after retirement. However, Ms. Hornberger related her belief that the monthly contributions she made and the school district made in the retirement fund was to cover all retirement costs, including any premiums such as Medicare. MS. HORNBERGER pointed out that school teachers and administrators aren't the only state employees who were informed their medical insurance would cost nothing after retirement. The same was related to troopers, Alaska Department of Fish & Game biologists, and (indisc.) enforcement officers. Furthermore, this was printed in benefit booklets printed and distributed by the state. Numerous examples of those printed promises have been collected. MS. HORNBERGER continued. She explained that when she turned 65 she discovered that she would be paying for medical coverage under Medicare. She also learned that the State of Alaska medical insurance program was no longer her primary coverage, as she had been told. Upon retirement in 1997, the premium was $45.50 and has risen to $54.00. Moreover, Medicare premiums are predicted to steadily increase over the next few years. Although these premiums may not seem like much, but for those on a small fixed pension it's a fortune. Ms. Hornberger related her impression that the Department of Administration views the Medicare premium as an item on the table for negotiation. However, a benefit that was promised as part of an employment package doesn't have to be negotiated. "We do not feel that we are negotiating with the Division of Retirement & Benefits for payment of those premiums, we are asking the state to live up to its promise to us and pay this premium out of the money we and our employers deposited with the state in trust for such payments. Alaska should honor its promise to Tier I state retirees and pay the monthly Medicare [premium]." TAPE 02-28, SIDE B Number 2945 CHARLES COSPER, Life Member and Past President, Retired Public Employees of Alaska (RPEA), testified via teleconference. This issue is so important to many retirees. He said that during his time as the past president of the RPEA, he was able to speak to many of its over 20,000 members. Most of those retirees say the same thing, that is that they were promised to have state health care for life at no cost. It's time for the state to honor the agreement that it made, he charged. Therefore, he urged the committee to pass HB 380. Number 2825 JAY DULANY testified via teleconference. He requested that if HB 380 is passed, then the reimbursement/payment of the Medicare premiums be before taxes in order that the amount won't be taxed by the Internal Revenue Service (IRS) on the individual retirees. Mr. Dulany noted his support of HB 380. Number 2775 MERRITT OLSON, Member, National Education Association - Retired, testified via teleconference. He noted that he has served as a member and chair on the Teachers' Retirement Board. He also noted that he is a member of the Trustee of the Alaska State Pension Investment Board, which establishes policies for all of the pensions funds. Mr. Olson informed the committee that it should have his written testimony, from which he read the following: I have, too, ... long been concerned about what I consider inequities that exist relative to the health insurance benefits for retired teachers and public employees in the state system. Member and employer contributions pay for pension benefits and health insurance at retirement through their membership contributions. Although retirees pay the required deductibles for health insurance, they are not assessed premium charges until age 65. Then Medicare automatically becomes their primary health coverage, and members must begin to pay the Medicare premium for insurance. It doesn't really measure up to that which state employees (indisc.) under the state system. Second additional charges to persons as they age tends to run counter to normal practices in this country. Older retirees, especially those who are in their mid- to late-80s or 90s, are particularly hard hit. Their pensions tend to be lower in amount as they retired earlier and, consequently, with lower salaries while, at the same time, the Medicare premium charges continue to increase. Currently, the monthly premium is $54 and it is ever increasing. Without the other income beyond their rather meager pensions, the elderly can be hard pressed to pay those charges. That area is my particular concern. I think House Bill 380 addresses this problem. I urge that you give serious consideration to this legislation. I do thank the committee for providing the opportunity to express my thoughts on the issue. I want to commend Representatives James and Hayes for their sponsorship of this legislation. Number 2549 REPRESENTATIVE JAMES, Alaska State Legislature, testified as the sponsor of HB 380. She began by pointing out that this legislation covers those in PERS, TRS, JRS (Judicial Retirement System), and EPORS (Elected Public Officials Retirement System). Representative James explained that she filed HB 380 per request, although she supports the idea. She mentioned that when one reaches age 65 one has to take Medicare. This is a requirement that she detests. By requiring Medicare to be the primary payer at age 65, it jeopardizes many seniors with regard to the type of treatment they can obtain. Furthermore, there is now discussion with regard to including prescription benefits in Medicare. Although she said she was in favor of providing prescription coverage to those dependent upon social security and Medicare for their insurance, she disagreed with the mandatory requirement for Medicare at age 65. Representative James remarked that there needs to be many changes with Medicare at the federal level. Therefore, at the state level the best avenue seems to be to take care of this Medicare payment for these retirees. Representative James turned to the fiscal note, which is large, and commented that she is interested in the cost of HB 380 for fiscal year 2003. Number 2264 GUY BELL, Director, Health Benefits Section, Division of Retirement & Benefits, Department of Administration, turned to the analysis of the fiscal note. He pointed out that the annual cost of HB 380 for PERS would be $10,759,700 and there would be a smaller amount for TRS. Furthermore, the University of Alaska for PERS is an annual cost of $1,294,000 and $536,100 for TRS. Additionally, there would be costs to political subdivisions that amount to $10,047,200 for PERS and to school districts the cost would be $7,548,800 for TRS. Those figures come from the rate impact of the 1.68 percent increase in the PERS contribution rate. He explained that the reason the cost is so high is because, historically, the retiree medical plan has been supplemented by Medicare, once a person becomes Medicare eligible. By adding this additional liability to the system, the system needs to collect the money to pay for the benefit, which occurs by increasing employer rates. Employee rates are fixed while employer rates float based on total liability amortized over about 25 years. Therefore, it's an additional, unanticipated cost to the system. Mr. Bell pointed out that [page 1] lines 9-12 of HB 380 is language that has been in existence for quite sometime. That language specifies that the benefits are supplemental to the Medicare plan, which is historically how this plan has been administered. CHAIR COGHILL stated that the sum of those figures is well over $20 million. He surmised asked whether it would be a baseline in growing or is the actuarial over a span of time. MR. BELL specified that it's amortized over about 25 years. He said that it's the annual cost, which would mean that it's effectively a flat cost over the next 20 years. However, he noted that it would depend upon the rate of inflation of Medicare versus other plans. CHAIR COGHILL surmised then that these costs would be directly connected to the retirement funds. MR. BELL answered that the fund owes more money in the way of benefit payments than it expected. In order to collect that money there is an impact on employer rates, and therefore employer rates will increase. For example, the City of Anchorage will have to contribute more in order to pay for these retirement benefits. The amounts [on the fiscal note] are the annual amounts that will be spread among the state and the state's political subdivisions, which are the municipalities and the school districts. CHAIR COGHILL related his understanding that [the state would] come up with an additional $10,759,000 out of PERS through a rate increase. MR. BELL agreed. CHAIR COGHILL commented that such would be a significant draw. Number 1937 REPRESENTATIVE JAMES said that she couldn't "buy into" that total cost. She also said that she is looking for options to cover this issue. If the state had the money, Representative James said she would be willing to pay the total cost of approximately $22 million. "I think it's the right thing to do, but I'm not willing to pass a fiscal note such as this when we're ... having the problems that we're having with the current budget issue," she remarked. CHAIR COGHILL related his understanding that the contribution rate that would be increased would be to the employee and the employer. MR. BELL specified that only the employer contribution rate would change under HB 380. The employee contribution rate is fixed. For example, for most state employees the contribution rate is fixed at 6.75 percent. However, over the years the employer rate has floated. He pointed out that over the years when the employer rate has decreased, it has largely been because of investment earnings. Number 1807 REPRESENTATIVE STEVENS inquired as to why the employee's contribution hasn't been reduced when the fund has done well. Although he understood that the employee's contribution is fixed because it's in statute, it doesn't seem quite fair. MR. BELL reiterated that the employee rate has been fixed in statute. At least once, there was an change in the law related to the employee rate. Therefore, theoretically the legislature could change the rate for employees by changing the law. One of the policy issues is in regard to whether the rate, if it goes down for employees in the good times, should go up in the not so good times. It has been the employer rate that has floated, which means that the employer has taken the risk for the bad times, and thus the employer gets to benefit from the good times. That has been the situation over the past 20 years. REPRESENTATIVE STEVENS pointed out that over the years the employees haven't benefited from the tremendous increases in the fund, only the employer. CHAIR COGHILL requested that Mr. Bell speak to the charge from some witnesses that they, as employees, were promised health care coverage beyond age 65. Number 1613 MR. BELL said that is a difficult question. He noted that currently there is a lawsuit relating to the constitutional guarantee of the retirement benefit and whether the medical benefit can be changed. The law provides that medical coverage is provided at retirement. However, the law also provides that it becomes [secondary] to Medicare when a person reaches the age of 65. "I don't know about other promises that've been made," he said. REPRESENTATIVE FATE pointed out that within that discussion of the promise to state employees is the matter of the co-pay. He related the question as to whether the promise of coverage was for the entire health care or for a percentage of the total, with the co-pay being Medicare Part B. Number 1522 REPRESENTATIVE STEVENS turned to the notion of reimbursement to the retiree before taxes, and pointed out that page 3, line 12, seems to read that the reimbursement would occur without taxes being taken out. MR. BELL said that he would have to review the tax code in order to provide an answer. In response to Chair Coghill's request to provide this information by next week, Mr. Bell said he would do his best to review it and provide an answer. REPRESENTATIVE JAMES remarked that she would like to do more research on the lawsuit because she was sure that legislation is cheaper than litigation. Number 1235 JERRY PATTERSON, President, National Education Association - Retired, turned to the $274 million fiscal note, which covers [many of the retirees and all of the active members] currently working. Therefore, it would cover a 20-year old clerk in PERS who wouldn't reach age 65 for 45 years and wouldn't receive their last reimbursement check for 65 years. When the annual cost of $30.4 million is divided into the $274 million liability, it appears that [the Division of Retirement & Benefits] is trying to collect a 60-year payoff in nine years. Mr. Patterson said that this year's actual cost would be $6.6 million. The accrual of new members reaching age 65 along with the inflation rate amounts to an additional $600,000 a year for the first eight to ten years. However, the division still saves $23.8 million. Each year that savings is less $600,000 due to the additional payments to those just turning 65. He estimated that in nine or ten years the system will have [saved] $200 million and collected over another $100 million, and over $300 million will have been set aside due to the collection of $25 million [a year] at the assumed 8.25 percent [interest]. Therefore, total principal and earnings will exceed $600 million [over the life of the fiscal note], which equates to about $5.3 billion in savings for the system. The ratio of savings to premiums paid is 8.5 to 1. Therefore, the question is whether the members should be paying $600 million to save billions over the life [of the payout]. CHAIR COGHILL interjected that HB 380 would be held over, and indicated that the committee would like to review the figures that Mr. Patterson is using.
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