Retiree Shifted to Medicare

Town retirees worry over health care change

Since 1992, 11 Cape towns have opted to save money by placing eligible municipal retirees on Medicare. This year, three of the four holdouts are considering adopting a state law to do the same, but the move is causing anxiety among those who worry about paying more for health care.

"It's very upsetting to a lot of the elderly retirees," said James Meads, a retired Provincetown police chief who leads that town's insurance advisory commission. "I can understand the town wanting to save money, but they spend it so foolishly. They're doing this on the backs of the retirees, and it's not fair."

Chapter 32B, Section 18 — or Section 18A, which applies to future retirees only — is a local-option law that ends the practice of allowing town retirees to remain, at their discretion, on conventional, non-Medicare medical insurance. It also shifts a significant portion of the current and future costs of retirees' medical insurance from towns to the federal government, according to the state Department of Revenue.

Voters at Provincetown and Truro town meetings will consider adopting the law in April. The town of Barnstable will consider the issue during budget hearings in May or June, town officials said.

Chatham has not adopted the law and will not consider the issue at the upcoming town meeting, said Chatham finance director Alexandra Heilala.

Pressure to cut budgets

Since 1991, active municipal employees and towns in Massachusetts have paid into Medicare, a state Department of Revenue official said. But town employees who then retire with conventional, non-Medicare insurance plans don't use that benefit, town officials in Truro and Provincetown said.

For example, Provincetown finance director Dan Hoort said the town and its active municipal employees will pay about $280,000 in Medicare fees in the upcoming fiscal year.

In Provincetown, officials have talked about the Medicare change for several years, but the option is now seriously being considered because of increasing pressure to cut the budget.

"Doing nothing is no longer an option," said Provincetown Selectman Michele Couture, chairman of the board.

In Provincetown, 45 town retirees and spouses, out of 188, have conventional, non-Medicare medical insurance plans and may be eligible to move to Medicare plans, according to a draft report by The Segal Group Inc., an actuarial and human resources consulting firm, in March.

In Truro, 16 town retirees and spouses, out of 52, have conventional, non-Medicare medical insurance plans and may be eligible to move to Medicare.

Public forums held in Provincetown and Truro on March 21 explained the pitfalls and upsides of adopting the measure.

The upside is savings for the town — and for some retirees, depending on their existing coverage compared with Medicare. But others could feel the pinch.

"It's incumbent upon the town to hold current and future retirees financially harmless," said Truro Selectman Gary Palmer.

In mid-February, the Massachusetts Taxpayers Foundation, a public policy organization dealing with state and local financial policies, endorsed the local-option law for towns as a way to reduce the towns' million-dollar promises of insurance benefits for current and future retirees.

The Cape's 15 towns owe an estimated $820 million in retirement insurance benefits, such as medical and dental insurance, but have largely not set money aside to keep that promise over the lifetime of its current and future retirees, based in 2008 actuarial calculations for each town.

Budget constraints and demands for more services, lower property taxes and better investment performance have placed towns under pressure to reduce that unfunded liability.

Conservatively, Provincetown could reduce its $63.4 million unfunded liability for retiree insurance benefits to $43 million by adopting Section 18, the draft Segal report says.

Also based on conservative estimates, Truro could reduce its $22 million unfunded liability for retiree insurance benefits to $14 million by adopting Section 18, the draft report says.

Retirees may pay less

But town employees and retirees worry about how the change will affect their medical coverage.

"You've got to provide a benefit that's comparable," said Laura Barrett of the Massachusetts Teachers Association, which represents most unionized teachers on Cape Cod.

Generally, eligibility of municipal retirees for Medicare is not a given: that depends on whether the retiree paid into it for at least 10 years of municipal employment, or during prior employment, or if a spouse contributed to Medicare, the state Department of Revenue says.

Also, whether retirees will have to pay more or less out of pocket depends on the type of non-Medicare plan they are enrolled in now and whether it is a family plan or individual plan, Segal's draft report states.

On average, retirees who would have to enroll in Medicare in Truro would see out-of-pocket savings, particularly for family plans, from $198 to $3,660 annually, the draft report states. The savings in the Truro plans comes, in part, because retirees there already pay 35 percent of their annual medical insurance premiums, said Daniel Rhodes of The Segal Group.

"We're all for saving money, but we're not sure about the system itself," said Truro resident Sara Hutchings, a member of the town's insurance advisory commission.

Provincetown pays 80 percent of annual medical insurance premiums, the highest percentage of any Cape town, for municipal employees and retirees.

Retirees in Provincetown who would have to enroll in Medicare generally would see increased out-of-pocket expenses in the range of $281 to $1,003 annually, the draft report states. That increase in cost is, in part, because retirees in Provincetown pay a lower amount for their premiums, Rhodes said.

"It's a big issue for us," said Provincetown town treasurer and union member Linda O'Brien.