Analysis of health care liabilities helped county alter benefit plan

Published June 26, 2006

by JOANNE WOJCIK

jwojcik@BusinessInsurance.com

REDWOOD CITY, Calif.--San Mateo County Benefits Manager Paul Hackleman arranged for an early analysis of the county's retiree health care liabilities so that he would be armed with that knowledge when negotiating benefit changes with organized labor.

"I didn't want to be in a situation where we were making changes without being very clear on both sides what the impact fiscally was," he said.

It will also help explore new strategies for retiree health care in the wake of upcoming retiree health accounting rules promulgated by the Government Accounting Standards Board, he pointed out.

"I think retiree health is a difficult problem to solve because you've got two competing objectives. You've got the employer objective to really make sure they've got their GASB costs under some kind of control so that they can manage that financially. But you've got retirees who are on fixed incomes for whom health care continues to outstrip, at a pace of about three-to-one, what the cost is for anything else," he said.

"And so you've got this constant erosion of the pension because of retiree health. So you put (retirees) in a difficult bind," particularly if the pension is their sole retirement income, he said.

"When we did our GASB analysis, we broke it out to see how the cost played out for different union groups," he said. "When we were bargaining with any particular group, we wanted to be able to go back and pretty quickly calculate what the impact would be if there were any change to that benefit."

By the end of this month, Mr. Hackleman expects to receive from Milliman Inc., the actuarial consultant selected to perform the GASB analysis, a summary of the strengths and weaknesses of various options including a voluntary employees' beneficiary association, a Section 115 integral trust and health savings accounts.

HSAs haven't gotten much traction with public employers because few offer the high-deductible health plans that must complement them. This is because labor has been very protective of its members' benefits and has resisted the cost-shifting inherent in HSAs, he said.

He will take this information to the negotiating table in November when the county begins contract talks with the unions representing 55% to 60% of its workforce. These include: the American Federation of State, County & Municipal Employees; the Service Employees International Union; Building and Construction Trades; and the Western Council of Engineers. The county has already settled with the sheriffs, probation and detention officers, nurses and extra help employees.

Fortunately, the county already has an element of a defined contribution approach to accruing funds for retiree health benefits. When employees retire, any unused sick time that has accrued over the course of their careers is converted into dollars and used to offset their contribution to the cost of their retiree medical benefits. County employees accumulate one day's sick leave for every month of work.

"It's pretty unusual to link unused sick leave to some form of a retirement benefit. But we wanted to use that to incent people to save sick leave," he said.

"For the vast majority of represented employees--70% of our workforce--it is a specified dollar amount. And for most of the individuals who are in that group, there are actually two tiers: If at the time of retirement an employee has remaining 45% or more of what they could have accumulated in sick leave, he or she will receive $195 toward each month's premiums for retiree health care coverage. If, on the other hand, the employee has less than 45%, they receive $165 toward each month's premium," Mr. Hackleman said.

"There's a higher payment for people who conserve more of their unused sick leave," he said.