Unfunded retiree health care obligations for Long Island public employees is a fiscal time bomb awaiting taxpayers. But there are ways to help ensure the retirement system does not collapse.
One proposal being pursued by New York City would require retirees to enroll in a Medicare Advantage plan, estimated to save a whopping $600 million annually. Long Island’s counties should consider the same.
While most private sector employees shift from their work insurance to Medicare when they turn 65, most public sector retirees get to keep additional health care coverage — paid in large part by the taxpayer.
And while most residents pay out of their own pockets for supplemental Medicare Part B (which covers non-hospital health care services), the overwhelming majority of retired teachers and other public employees receive 100% taxpayer reimbursement for this coverage. This costs about $2,000 per lower-income retiree annually, or $4,000 for a couple, and up to $13,000 per year for a higher-earning couple.
The first figure multiplied by the 465,317 public sector retirees in the state creates a burden of $931 million annually on New York taxpayers for this coverage alone, and double that if both spouses are covered.
Additionally, while both public and private sector retirees get 80% of their hospital bills covered by Medicare (Part A), public sector employees get taxpayer assistance with paying for Medigap, which pays the other 20%.
The Empire Center for Public Policy, a fiscally conservative think tank, notes that when the public employee health care fund was created in 1957, the employer share of the premium was 50% for individual coverage and 35% for additional dependent coverage. It has evolved to the point where some public employees, including retired New York City teachers and retired Suffolk County employees, pay zero premiums toward their health care.
New York comprises 6% of the U.S. population, yet owes 25% of the national debt for retiree health care obligations and has a $360 billion total taxpayer obligation for public sector retiree health care. While the state’s pension fund obligations are funded with reserves, our health care obligations have few, if any, reserves in place.
The silver lining is that while the New York Constitution states that pension income is a contractual entitlement that cannot be “diminished or impaired,” the Court of Appeals has ruled that this provision does not apply to health care for retirees.
Past calls to reform this system have fallen on deaf ears in Albany. The Empire Center proposed significant changes to state law over a decade ago that would have saved taxpayers hundreds of millions annually, including:
- Preserve health benefits for already retired workers, but stop reimbursing Medicare Part B for those over 65, and require early retirees to pay larger premiums.
- Reserve the greatest benefit to those who have worked the longest.
- Require at least 10 years of service for new employees to be eligible for retiree health insurance coverage.
Additionally, all retirees should be required to contribute at least 10% toward their health care.
Clearly, something must be done. While early retirees in large private employer plans pay an average of 51% of their medical premiums, government retirees pay an average of 9% for their premiums, with many paying zero. This scenario is unsustainable. Addressing it now will not only save taxpayers immediately, but will help ensure that the system remains viable for future retirees.
This guest essay reflects the views of Edward J. Kelly Jr., a board member of The Center for Cost Effective Government, a Long Island-based think tank dedicated to protecting taxpayers.
This guest essay reflects the views of Edward J. Kelly Jr., a board member of The Center for Cost Effective Government, a Long Island-based think tank dedicated toward protecting taxpayers.