OCEAN CITY – The City Council has decided to eliminate retiree health care for new hires unless the employee chooses the new health care option of a high deductible plan with a Health Savings Account (HSA) to be accrued towards retirement.
A few weeks ago, Kay Moran of Bolton Partners Inc., presented the Mayor and City Council with an option of a HSA to be used for retiree health coverage for the town’s new employees.
At that time, Moran explained that there is a legislative limit applied to maximum contributions of a HSA, by the employer and the employee, saying, “A health savings account is a vehicle that both the town and the employee can contribute too while they’re active.”
There is a requirement that the employee has a high deductible health plan. The 2011 limit requirement is a $1,200 single deductible and a $2,400 family deductible.
“This is a good option for active employees to participate in and any money that is not used from the health savings account can be carried forward year after year,” Moran said. “So if you are a healthy employee and your family members are healthy you can accumulate the money in an account until you retire.”
This week, Moran returned to present additional information on the HSA retiree medical plan. This option would be offered to new hires as well as current employees with a contributed set dollar amount, such as $1,500 per employee electing single coverage, $3,900 per employee electing double coverage and $5,000 per employee electing family coverage. The town’s contributions are offset by the premium rate difference between high deductible plan and current PPO, and employees hired after July 1, 2011 will have access to the plan once they meet the eligibility requirements of 25 years of service.
“We had talks about a defined contribution type of approach because it was the goal of the council to pay the liabilities as they are being accrued while the employees are active, pay as you go in that sense,” Moran said.
She also recommended the council consider postponing its effective date until Jan. 1, 2012 instead of July 1, 2011.
Councilwoman Mary Knight asked about the effectiveness of an HSA on new hires and if the town would still be competitive in recruiting new employees with the surrounding areas.
“This [HSA] is certainly an alternative,” Moran said. “It is nowhere near the benefits you are offering to your existing employees but is better than not offering anything to the employee when they retire.”
Councilman Joe Hall asked how the Carefirst rates would be affected by adding the new option to the town’s health care benefit.
“The renewal is very favorable,” Moran said. “The difference in the high deductible health plan compared to the PPO is a 30 percent savings.”
City Manager Dennis Dare explained that the existing employee had the option of either an HMO and PPO, both set at a cost share ratio of 90/10. Due to a recent change, new employees that start July 1, 2011 or after would have the option of a PPO at 85/15 or an HMO at 90/10. By adding the HSA as of Jan. 1, 2012, the new employee or an existing employee will have a third option to switch too in order to save for retiree health coverage.
“If there is an ordinance passed that eliminates all retiree health for new employees, this sets up an avenue for them to save some money for retiree health and when they retire the only thing that they would be eligible for would be the high deductible,” Dare clarified.
Knight added that if the new employee opts for the HMO or PPO throughout their entire career and then when they retire they switch to the high deductible plan, they would have nothing saved toward retiree health coverage because they did not participate in the HSA while they were an active employee.
Councilman Joe Hall made the motion for the high deductible health plan with a HSA added to the existing options of an HMO and PPO effective as of Jan. 1, 2012. The council voted 4-3 to approve the new retiree health plan option with Councilman Doug Cymek, Council Secretary Lloyd Martin and Knight in opposition.
Following the vote, Joe Hall made an additional motion to eliminate retiree health care for new hires other than the high deductible and that passed in a 4-3 vote as well.
“The reality of the situation is the way that health care costs are I think everybody realizes that any type of good retiree health is a great benefit,” Mayor Rick Meehan said. “Even if the cost to the employee does go up somewhat, it is still a great benefit.”
Meehan favored a change in current employee retirement health coverage in order for the town to receive cost relief earlier than later.
Moran presented two other options to reduce liabilities by capping employer subsidies for existing employees by 3 or 5 percent. Also to grandfather employees after 10 and 15 years of service, and those hired prior to July 1, 2005.
“That has an immediate impact for today’s taxpayers and continues to provide an excellent benefit,” Mayor Meehan said. “I still favor working in that direction. It’s where we are going to end up going … addressing all of our health care costs and I think this is the time to do it.”