Proposed health insurance changes would increase costs for city retirees and employees

May 17--Last month, Memphis Mayor A C Wharton formally proposed cutting subsidies for city retiree health insurance and using the savings to help the troubled pension fund, news that angered, confused and worried pensioners like 77-year-old former firefighter Samuel A. Locastro Sr.

Weeks after Wharton's announcement, Locastro still doesn't know exactly what a health-insurance cut would mean for him and his wife, Sharon.

He said the city hasn't sent him information. "In fact, I get old firemen calling me all the time saying 'What have you heard? What's going on?'" said Locastro, who lives in Bartlett. "And I'm telling them, 'I don't know.'"

The Memphis City Council is set to review the retiree health-care subsidy cut again on Tuesday, though a final vote likely won't come for weeks.

If the City Council approves the cut, many city retirees will see dramatic cost increases, though some could find alternative coverage. Separately, the mayor's administration proposes to control increased health-care costs by boosting premiums 57 percent. That increase would affect all current employees and retirees.

Some City Council members have already said they won't do anything that would hurt retirees. If the council doesn't approve the cut, the city may have to cut elsewhere or raise property taxes to find money to address a pension-fund shortfall.

To report on the proposed changes, The Commercial Appeal interviewed city retirees, the mayor and his human resources director, as well as health insurance experts with the Aging Commission of the Mid-South and the Kaiser Family Foundation, a national health care research organization.

The situation is complex and continues to change. But here's a summary of how the proposals would impact different groups:

Current employees

The city employs roughly 6,000 workers, all of whom would see monthly health-insurance premiums rise 57 percent. Costs for the proposed new premiums weren't available.

The city also wants to raise the smoking surcharge from $50 per month to $120 per month per family and proposes a "spousal carveout," meaning it wouldn't offer health insurance to employees' husbands or wives who could receive insurance through their own employers.

Retirees

The city provides health insurance to about 4,000 retirees, plus several hundred of their spouses and children. The smoking surcharge and proposed 57 percent premium increase would also apply to all retirees. Otherwise, three different groups of retirees would have different experiences.

Group one: Retirees over 65 who are eligible for Medicare and enrolled in both Medicare and the city's health insurance

Locastro, the retired firefighter, belongs to the group of roughly 1,500 city retirees who are enrolled in both the city's health insurance and Medicare, the federal health insurance program for those 65 and older.

Locastro could stay on city insurance if the subsidy cut goes through. He'd just have to pay more. He's enrolled in the city's "premier plan," administered by Cigna, and pays a monthly premium of $334 for himself and his wife.

That number represents 30 percent of the whole premium. The city subsidizes him by paying the other 70 percent. If the city stopped paying the subsidy, his monthly price would rise to $1,114. The 57 percent premium increase would bring that to $1,750.

That would eat up more than half of his monthly pension of $3,300, and he would still pay the monthly $105 premium for Medicare Part B.

So if he couldn't afford city health insurance, wouldn't Medicare be enough? Locastro points out that Medicare doesn't pay all costs. Medicare patients typically pay a deductible of $1,216 every time they go to the hospital, said Christina Boccuti with the Kaiser Family Foundation. They also pay 20 percent of costs for items such as doctor's visits in the hospital.

To avoid big bills, Locastro might have to buy a type of supplemental health insurance called a Medigap policy. A typical Medigap policy cost $168 per month per person on the open market in Tennessee in 2010, according to the Kaiser Family Foundation.

However, health-insurance companies selling Medigap policies may require applicants to submit medical records. The companies can set high rates or refuse to offer coverage at all, said Vickie Thompson, a Medicare specialist at the Aging Commission of the Mid-South. "Let's just say that a person has cancer," she said. "Very seldom is anybody going to write a policy for anyone who has cancer."

Locastro has had serious health problems, including bypass surgery, high blood pressure and diabetes. Regardless of retirees' health, the mayor's administration proposes to offer them a private Medigap plan and Medicare Part D prescription-drug coverage at a price that's lower than market rates, said Quintin Robinson, the city's human resources director.

Locastro might also have another option: coverage through his wife's insurance. She's only 63 and continues to work as a nurse at Regional Medical Center. "Although the city of Memphis (insurance) is better than The Med's, you got to have what you got to have," he said. Of course, not every retiree has a working spouse.

Group Two: Retirees who are over 65 and have little or no access to Medicare

About 1,100 retirees can't qualify for Medicare because they worked for the city at a time when city employees didn't participate in the program or they only have Medicare Part A for hospitalization or Medicare Part B for medical services, Robinson said. Other retirees in this group chose not to enroll in Medicare when they turned 65, and they would face financial penalties if they joined now.

If the council approves the 57 percent premium increase, these retirees' costs would rise. But the city would continue to pay a 70 percent subsidy for these 1,100 retirees.

Group Three: Retirees who haven't turned 65 yet

About 1,400 city retirees are younger than 65 and not yet qualified for Medicare. These retirees would lose the 70 percent subsidy and could continue to pay the whole premium for city insurance, though few would likely do so.

They may be eligible for insurance through a new job. Some may obtain insurance through a spouse -- a total of 488 retirees who are not yet 65 are married to working spouses whose employers offer family medical coverage, but they have chosen to stay on the city plan, said Robinson. "The (city) benefits are richer and cheaper than the spouses', quite frankly," he said.

Or these retirees could find coverage on the new federal exchange.

The prices of exchange plans depend on factors including age, income, where the person lives and whether they smoke, according to the Kaiser Family Foundation. Plans are given a rating of bronze, silver, gold or platinum, with bronze plans requiring the retiree to pay the lowest premiums but the biggest share of medical expenses.

A single 64-year-old nonsmoker living in Midtown and earning $45,000 per year would pay a premium of $454 per month for a silver plan. But a tax credit would reduce that to $356 per month, according to a calculator on the Kaiser foundation's website.

That's far more expensive than the current city retiree health-insurance premium of $166 to $184 per month for a single person. And a silver plan would likely require the retiree to pay a bigger share of medical expenses than the city's insurance: The highest "out-of-pocket maximum" for a single retiree on city insurance is $3,500, while on a silver plan, it's $6,350.

Gold plans for the hypothetical 64-year-old retiree would start at $476 per month after tax credits and offer out-of-pocket maximums as low as $2,100. Platinum plans would start at $678 and offer out-of-pocket maximums as low as $1,500, according to the government website healthcare.gov.

A sense of betrayal

Perhaps the most vocal opponent of the proposed changes is Mike Lee, the 69-year-old president of the Association of City Retired Employees. He said the retirees are being treated like garbage. "We're just something to throw on the side of the road."

He said he was promised retirement benefits and city health insurance when he joined the police force in March 1968. "They even had people come out to tell us all this stuff to the training academy."

He said the cuts would inflict real suffering on vulnerable people who can't pay, and that retirees will take their case to court. "It violates a contract we have with the city. They're just trying to walk over us."

Locastro, the former firefighter, also feels the city is going back on its promise. "To be honest, it's a real sore spot with me right now."

In an interview earlier this month, Mayor Wharton said the pension crisis forces him to make hard choices.

"And although you know in your heart, you know there's no animus whatsoever. And even though you know you weren't sitting up here one day saying, 'What can I do to them today? How can I gouge them one more time?'"

"But you're sitting there, getting a letter saying 'You better straighten out this pension thing or, by George, we're going to come down and straighten it out for you.'" He was referring to letters last year from the state comptroller on bond debt and other financial problems. "When you know that in mid-November, you sat down with your (bond) rating agencies in New York and they looked right across the table and said 'What's your plan for straightening out your pension stuff down there?'"

Wharton said cutting retiree health care would save an estimated $27 million in the next fiscal year, much of which would help the city raise its annual contribution to the pension fund from about $20 million now to $35 million. The city is legally required to keep the pension fund solvent, and it owes hundreds of millions of dollars more to retirees than it has on hand. Experts hired by the City Council estimated the gap at $467 million, though other experts have reached different conclusions.

City Council members have cast preliminary votes to use much of the rest of the $27 million in savings for purposes including hiring a new police recruit class. A subsidy cut would also erase most of the city's $1.3 billion unfunded liability for retiree health care. "I would be betraying my oath if having been warned and directed, I were to say, look, this stuff is going to be politically unpopular. I ain't gonna touch this!" Wharton said.

The debate on health care continues at 8 a.m. Tuesday at City Hall when Robinson, the human resources director, makes a presentation to a City Council committee.

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