Health subsidy debate pits towns vs. retirees

But the New Hampshire Municipal Association, representing those local governments, says that if House Bill 1645 does not pass and the medical subsidy increases continue, property taxes across the state will rise by tens of millions of dollars. The chairman of a Senate committee currently reviewing the issue says there are important federal tax implications that he says have him leaning toward favoring eliminating the subsidy increase.

The municipal association has set up a calculator on its Web site that allows local officials to type in their city or town's payroll numbers and find out how much their retirement costs will rise if the bill passes and if it does not.

So far, 78 municipalities have participated.

'Phenomenal' impact

The difference in costs and the impact on property taxes is "phenomenal," says NHMA legal counsel Maura Carroll, adding, "These are not our numbers. We've been trying to educate our members and provide as much data as possible to help people understand the implications."

In Manchester, for instance, the increase in next year's retirement costs if the bill passes is calculated at $652,289. If it does not pass, the calculator says Manchester's cost will be $2.93 million for a "property tax impact" of $2.27 million. In Salem, the increase is $29,473 if the bill passes and $792,408 if it does not (see chart). The benefit is $375 a month for one person and $751 for two people.

But representatives of public employees, which have formed the New Hampshire Retirement Security Coalition, say that while the account is running out of money, such a drastic solution is not necessary and can be fixed with a long-term solution arrived at by all of those with a stake in the outcome.

David Lang, president of the Professional Fire Fighters of New Hampshire, says a law passed last year has changed the accounting method for the retirement system in a way that will eventually make it solvent.

"Let's let that law (formerly House Bill 653) do its work," he said. He said the separate bill now under review sets up a committee to study ways to fund the medical subsidies long-term. He says he believes the committee can come up with a fair solution.

The coalition, in a recent paper on the American Federation of Teachers-New Hampshire web site, says, "The medical subsidy is too important to make benefit or funding changes without accurate and complete information."

Lang said that with medical inflation at about 10 percent a year, without the 8 percent escalator, "a two-person medical insurance plan will completely consume a monthly annuity in five to six years."

He noted that the medical subsidy, with the 8 percent annual hike, was set up as a separate, "defined benefit" account in the early 1990s because the main retirement account had excess earnings. But now, tough economic times have changed conditions for retirees just as they have for the financial health of the system. He said the retirees need the increases now more than ever.

"These are the folks that plow the streets and protect the streets and fight the fires," said Lang. "There are real people out there, and a promise was made to them. Do we want to turn our backs on these folks?"

At issue is the bill's provision to freeze medical subsidy payments that public workers now get and transfer $250 million from a separate medical subsidy fund into the main retirement system fund.

The proposed change was aired at a public hearing last Wednesday before the Senate Executive Departments and Administration Committee. House Bill 1645 passed the House last month without debate and is now undergoing close scrutiny in the Senate, which is in the midst of four public hearings on different aspects of the bill.

Earlier this month, leaders of public workers' unions urged the committee to slow the pace of the reform, saying that changes already made to the system will eventually make it solvent. But employers say the system needs quick fixing.

The retirement system, which serves 70,000 retired and working public employees, is about $2.7 billion short of the amount of revenue it needs to cover its long term obligations. The separate account that pays medical subsidies is also heading toward insolvency.

The subsidy, which has about 10,000 beneficiaries -- roughly half of the total number of retirees in the system -- was listed as the top priority for lawmakers in recommendations issued last year in a comprehensive report by a 20-member commission to study the long-term viability of the system.

In a Jan. 2 report, the commission wrote that when the Legislature authorized the subsidies in the early 1990s, "they were believed to be terminally (fully) funded. Due to the market downturn of 2001-2003 and other factors ... the subsidies are now only 16 percent funded."

The special account that funds the subsidies, the report said, "has assets of $159.6 million and liabilities of $822.2 million."

Under current law, 25 percent of public employer contributions to the retirement system go into the separate "sub-trust" to fund the medical subsidy.

The report said that if the employer contributions are stopped, "the subsidy will run out of money within a few years." It also said, "If nothing changes and employers continue funding the subsidy program with an 8 percent annual escalator in the subsidy amount, (municipal) contribution amounts are projected to increase significantly in FY 2010 and beyond."

'Medication or groceries'

Retired Derry teacher Maureen Chamberlain made an impassioned plea to the Senate committee last week that she needs the increase. In written testimony, she said, "No one should have to make a choice between purchasing medication and purchasing groceries. If our medical subsidy is cut I fear that could become a reality for me."

Chamberlain said she is a 60-year-old Parkinson's disease patient who pays $2,000 a month for medications and $17,278 a year for health insurance. She said the subsidy and her overall pension will be reduced when she and her husband go on the Medicare rolls at age 65.

"It's an inversion," she said. "Our costs go up each year and our benefits go down."

NHMA counsel Carroll acknowledged that the medical subsidy change may make it difficult for some retirees.

"We absolutely understand that," she said, "and costs for all kinds of services increase over time, but it does not necessarily mean that the employer must cover those costs.

"I know that sounds hard-hearted," she said, "but it's unaffordable for the taxpayers to continue to do it."

Carroll also said, "It used to be the norm that private sector employees did not have to contribute to their health insurance. Now it's the norm for them to contribute."

In addition to the subsidy issue, HB 1645 addresses several other areas, all being studies by the Senate.

It would require police and firefighters hired after July 1, 2009 to work for 25 years until age 50. Now, they must work only for 20 years until age 45.

It reduces the number of employee members of the retirement system board from eight to four and ads two investment experts to the board.