State government retiree's health care program in financial straits

By 2020, coverage will no longer be considered solvent

Barry Massey | The Associated Press

9/8/2008 -

A program that provides health care coverage to about 42,000 governmental retirees and their dependents is projected to become insolvent by 2020, but its financial condition has improved, lawmakers were told Monday.

Officials of the Retiree Health Care Authority said the solvency of the program has been extended by four years — up from 2016 — because of recent insurance premium increases imposed on retirees.

"We are still short of our goal of a 15-year solvency, but 2020 is better than 2014," said Wayne Propst, executive director of the authority.

To add four more years to the program's solvency, the authority is proposing that the Legislature approve an increase in the amount of payroll contributions by public employers and their employees.

The authority is an independent agency that provides group health care coverage for retirees who worked in state, county and municipal governments, public schools or higher education. The authority is governed by a board.

The authority has an unfunded liability of about $4.1 billion but that has dropped from about $5 billion, Propst told the legislative Pensions and Investment Oversight Committee. That figure represents the amount that future liabilities of the program are projected to exceed the authority's current assets and their estimated growth.

The authority's financial problems stem from rising health care costs, growing numbers of retirees — including retirees who are relatively young — along with generous insurance plans with premiums that had been highly subsidized by taxpayers, according to Propst.

"We continue to get more retirees all the time and this program continues to grow," said Propst, who became executive director about six weeks ago.

Premiums have increased an average of 15 percent this year. The authority offers several insurance plans, and premiums for those vary. Rates for a 20-year retiree in the authority's top-of-the-line group health insurance plan went up 70 percent — from $160 to $272 a month. At the higher rate, the retiree is paying 35 percent of the health plan's cost.

The authority has proposed that combined employer and employee payroll contributions be increased over three years from 1.95 percent to 3 percent of a worker's salary. Any change must be approved by the Legislature and signed by the governor.

Rep. Donald Bratton, a Hobbs Republican who serves on the committee, said the proposal would require an increase in taxpayer money from the state and local governments.

"When it comes down to it, any increase is going to come from the tax base at some level," said Bratton.

The authority has proposed a budget for the next fiscal year, which starts in July 2009, that assumes a $22 million increase in revenues by boosting payroll contributions of employers and employees to 2.5 percent from 1.95 percent.

"The board, I believe, has begun to face and meet the challenge of solvency," said Propst.