Governor's health proposal could hurt retirees

Sacramento Bee -- If you’re a state retiree or planning to become one, a piece of Gov. Jerry Brown’s 2015-16 budget proposal could hit your wallet.

The governor’s plan envisions a new high-deductible, lower-premium health insurance policy for state workers. It would be paired with a tax-advantaged health savings account and take effect Jan. 1, 2016.

Such coverage is common in the profit-driven private sector, but the state government has never offered it. Instead CalPERS, which negotiates with insurers to cover state and local government workers, has stuck largely with more-expensive HMOs and preferred provider organizations.

The state this year will pay $3 billion to cover its employees, the administration estimates. Another $1.9 billion will cover retirees. There’s a link: The state’s medical insurance subsidy to retirees is based on an average of the premium costs of the four plans with the most employee subscribers.

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Two HMOs, including Kaiser, and two Blue Shield PPO plans have the most state enrollees, CalPERS’ most recent data show. Some other options cost more, some cost less.

The weighted average premium of those four plans set the subsidy for retirees’ medical insurance: Those under age 65 will receive up to $7,860 for single coverage this year if they worked long enough – usually 10 years – to receive 100 percent of the subsidy, according to Department of Finance figures. The maximum subsidy for a retiree plus a dependent is $14,952 and $19,260 for a retiree and two or more dependents. The state pays about half that for supplemental insurance once retirees enter Medicare at 65.

The benefit acts as a retirement incentive, too, because the state pays only 80 percent to 85 percent of active employees’ health premiums. Some pension-age employees are leaving money on the table to keep working.

Assuming Brown gets what he wants, how long before the dominoes would fall on retiree benefits? How big a bite would it take? It’s not clear.

Everything from changes in health care law to the economy could affect what plans state workers choose. Stagnant salaries might prod some into a plan with cheaper monthly premiums. Younger state workers might prefer the cheaper plan and keep more monthly money in their pockets, reasoning that they probably won’t need expensive medical care.

Public employee unions and retiree groups have long worried that the state would head down this road. There’s been plenty of buzz about Brown’s proposal, but stakeholder leaders aren’t saying much publicly.

Tim Behrens, president of California State Retirees, acknowledged that “any large migration” to another health care plan could impact his members’ premiums, but declined to say more for now.

“We will be monitoring this proposal closely,” Behrens said, “and will need to see the specifics when it is in legislative form.”