Municipal retirees face health care cuts under GOP plan

Jonathan Oosting
Detroit News Lansing Bureau

Lansing — Michigan House Republicans on Wednesday introduced an aggressive plan to limit retirement health care benefits for police officers, firefighters and other government workers in cash-strapped municipalities across the state.

The 13-bill package, set for committee consideration Thursday, is an attempt to rein in unfunded liabilities in communities that have extended more benefits to employees than they can afford.

“Health care costs continue to grow, and grow faster than anything else, whereas revenues are static,” said sponsoring Rep. Earl Poleski, R-Jackson. “In the long haul, the current model does not appear to be sustainable.”

A local unit of government would be prohibited from paying more than 80 percent of retiree health care costs if its program is funded at less than 80 percent of outstanding liabilities.

The proposal would affect current employees and retirees but would not apply to municipalities with well-funded retirement health care programs.

New hires would not be offered retiree health care coverage at all. Instead, a local unit of government could contribute up to 2 percent of an employee’s pay to a tax-deferred Health Savings Account he or she could use upon retirement.

“We’re sort of getting out of the post-employment health care business,” Poleski said.“It’s Medicare that covers people in retirement for health care, and the costs that are incurred for pre-Medicare retirees is very substantial. That’s where the big unfunded amount is coming from.”

The plan would be “horrendous” for local government employees, said Nick Ciaramitaro of the American Federation of State, County and Municipal Employees Council 25, a union that represents about 40,000 workers across the state.

“Retirees would have huge bills at the end,” he said, suggesting it could cost a retired couple $3,600 a year to cover 20 percent of their own health care costs.

“You’re going to have a lot of employees with relatively small pensions who will have their entire pension eaten out by the premium,” he said.

With less than three weeks left in the legislative lame-duck session, House Republicans are hoping to move quickly on the proposal. Rep. Lee Chatfield, who chairs the Local Governments Committee, plans to take up the legislation Thursday morning.

“The bills were just introduced, and we’re going to make sure they get properly vetted in the committee and questions are answered that committee members will have,” he told The Detroit News.

The 13-bill package was added to the committee agenda late Wednesday, giving retirees who may be affected by the bills a tight window to plan a trip to Lansing if they want to testify. Chatfield, R-Levering, said he was not sure if he would schedule more than one hearing before a potential vote.

“It’s difficult to say at this point,” he said. “That’ll be up to the committee members.”

House Speaker Kevin Cotter, R-Mount Pleasant, is expected to testify in support of the package.

Democrats were just learning about the bills Wednesday evening but were quick to blast the package in concept.

It’s a “quiet way for the GOP caucus to screw over” municipal employees without cutting their direct pay, said Rep. Jeff Irwin, D-Ann Arbor.

“I think it’s pretty heartless to take someone who is on a fixed income, who has planned for their retirement and who may already be struggling to get by and to pull the rug out from under them,” he said. “It’s a really unfriendly thing to do right before Christmas.”

Poleski acknowledged retirees affected by the retirement health care cuts may face “difficult choices” but argued that mounting unfunded liabilities are crippling some municipalities, demanding action.

He was not able to say how many municipalities would be forced to limit health care coverage for current retirees because of their unfunded liabilities.

“In the long haul, unless we make some substantial changes to how we do employment retiree health care, the risk is that it doesn’t exist at all, as opposed to being shaved in the way we’re talking about here,” Poleski said.

Michigan Republicans are setting their sights on unfunded liabilities in the final weeks of the year. The Senate is considering a separate proposal that would close the state’s teacher pension system to all new hires and instead offer them 401(k)-style plans.

Michigan and its local units of government have $51.4 billion worth of unfunded retirement cost liabilities , according to a report prepared by former U.S. Comptroller General David Walker and released this fall at the West Michigan Policy Forum.

The report commissioned by the Grand Rapids Chamber of Commerce also showed the cities of Grand Rapids, Ann Arbor, Lincoln Park, Saginaw, Port Huron, Kalamazoo and Traverse City have $1.69 billion in unfunded retirement liabilities.

The seven cities have another $1.15 billion for other retirement plan liabilities, especially in health care where “considerable uncertainty exists” on costs and those could balloon, according to the report.