Tuesday, June 8, 2021

Threat to Health Insurance for NYC Retirees.

The following is an opening to a recent news article:

Nearly 250,000 retired New York City employees and their spouses could have their health insurance changed to “Medicare Advantage” plans managed by private insurers as soon as July 1, New York Focus has learned.

Retirees, who are pushing to delay the switch, say they are worried that a switch away from their current Medicare plan could lead to dramatically higher out-of-pocket costs and a smaller network of providers.

“It’s a little frightening,” said Jane Roeder, a retired city administrator. “The word on the street is that these Advantage plans are fine as long as you don’t get sick, as long as you don’t need the chemotherapy that my friend is having right now, or radiation treatment, or infusion treatment, or skilled nursing.”

Currently the City provides health insurance to city employees (and their dependents) and continues to provide it to them when the employees retire. This statement is generally correct with some exceptions.

As reference, this is the current statute from the NYC Admin Code Section. 12-126.b:

b. Payment of health insurance costs. Except as otherwise provided in section 12-126.1 and section 12-126.2 of this chapter, for city employees, city retirees and their dependents:

* (1) The city will pay the entire cost of health insurance coverage for city employees, city retirees, and their dependents, not to exceed one hundred percent of the full cost of H.I.P.-H.M.O. on a category basis.

Where such health insurance coverage is predicated on the insured's enrollment in the hospital and medical program for the aged and disabled under the Social Security Act, the city will pay the amount set forth in such act under 1839 (a) as added by title XVIII of the 1965 amendment to the Social Security Act;

provided that such amount shall not exceed the sum of nineteen dollars and fifty-three cents per month per individual for the period beginning January first, nineteen hundred eighty-eight and ending December thirty-first, nineteen hundred eighty-eight, and

provided further however that such amount shall not exceed the sum of twenty-seven dollars and ninety cents per month per individual for the period beginning January first, nineteen hundred eighty-nine and ending December thirty-first, nineteen hundred ninety-one, and

provided further that such amount shall not exceed the sum of twenty-nine dollars per month per individual for the period beginning January first, nineteen hundred ninety-two and ending December thirty-first, nineteen hundred ninety-five.

Provided further, that such amount shall not exceed the sum of thirty-two dollars per month per individual effective January first, nineteen hundred ninety-six.

Provided further, that such amount shall not exceed the sum of thirty-eight dollars and seventy cents per month effective January first, two thousand and

provided further that each year thereafter, the City shall reimburse covered employees in an amount equal to one hundred percent of the Medicare Part-B premium rate applicable to that year.

At retirement, the retiree can generally pick any one of the insurance plans that are available to active workers. The retiree can also stay with the plan he/she was enrolled in while a worker.

There is no charge for the two standard insurance plans(GHI and HIP) , both for workers or retirees. Other plans may require payments from the workers or retirees.

When the retiree turns 65 and is not working for another employer, he/she is required to enroll in Medicare. At that point Medicare becomes his/her primary insurance plan and the City plan becomes secondary. At this point the cost to the City for the retiree's health insurance drops significantly. The retiree can pick original Part B Medicare coverage or a Medicare Advantage plan. If the retiree chooses original Part B Medicare, the City's health insurance acts as a medigap insurance plan for the retire. The retiree is, however, responsible for his/her own drug coverage.

Note: To be eligible for health insurance the retiree needs to be receiving a pension from one of the five city pension funds and have more than ten years of credited service in the pension fund (five years for old timers).

There are, however, many variations in the above description. In particular, when the retiree has a younger spouse and/or dependent children under age 26. The City insurance continues to fully cover the spouse and/or children even after the retiree moves over to Medicare coverage.

There are also wrinkles when the retiree is an employee of another organization and has health insurance from their employment. The retiree is not required to enroll in Medicare as long as the retiree continues to work with health insurance coverage.

City employees and retirees usually have to purchase drug coverage from the health insurance plan they elected to be covered by. Sometimes drug coverage is provided by a union welfare fund. At the start of Medicare coverage retirees have to pick and pay for a drug plan that meets Medicare Part D requirements. Again this component gets complicated by non-Medicare dependents.

Currently Medicare Advantage Plans are available to city retirees as alternatives to the Standard Part B Medicare coverage. I suspect that the participation rate is low of these plans but not trivial.

The main problem with Medicare Advantage plans is the fact that retirees are restricted in picking their doctors and costs fluctuate with usage. The NYC area creates particular problems with this issue. My own expirence using doctors associated with the hospital at New York State University at Stony Brook is that they do not accept Medicare Advantage plans. There are also significant variations in cost for MA plans based on geographical areas covered.

To say the least medical insurance is a twisted system that has evolved over the years.

In order to cut costs

In secret, the City and a group of unions, including DC-37 and the UFT, are trying to put together a plan to cut health insurance costs (benefits) for all city retirees. So far the specific details are not public. Allegedly the parties are negotiating with two insurance companies to provide a mandatory Medicare Advantage plan for all Medicare eligible NYC retirees. I'm not sure whether the police and fire unions are in on this deal. Aetna and Emblem Health are the two potential firms.

There is, however, no accounting model outlining the targeted cost savings for retirees, how the savings would be achieved or a breakdown of the profits that the Medicare Advantage carrier will make with the conversion. The City's health insurance costs have always been a murky area.

The union welfare funds make the picture even darker. These funds are audited by the City Comptroller. In October 2020, the Comptroller released a 2018 audit. Many of the welfare funds are in dire straights and need help.

Most of the health insurance money for both workers and retirees is being paid to Emblem Health/Blue Cross, one of the two insurance firms haggling over the new Medicare Advantage plan for the City. It would be very helpful to see a full health insurance cost breakdown.

The current Emblem Health Contract needs a hard analysis of what it is providing and what it is charging. This is the battleline for the City and health insurance costs, applied across the board for all workers and retirees, and not at the point where the cost for retirees drops because of the start of Medicare coverage.

This insurance program started back in the 1950's. It was a revolutionary idea back them but it has been allowed to deteriorate.

Below are the cost items that I was able to pull from the FY-2022 NYC Executive Budget:

  • FY-2021
    • Employee Fringe Costs
      • Health Insurance = $2.2B
      • Welfare Funds = $355.1M
    • RNBT Costs
      • Health Insurance = $268.5M
      • Welfare Funds = $201.5M
  • FY-2022
    • Employee Fringe Costs
      • Health Insurance = $1.7B
      • Welfare Funds = $538.9M
    • RNBT Costs
      • Health Insurance = $2.1B
      • Welfare Funds = $320.0M

The Retiree Health Benefit Trust, RFBT, was created in 2006 to pay retirees' current health benefits and build up a reserve fund to cover future costs.

In FY-2020, the City used $1.0B from the RNBT to cover budget short falls and in FY-2021, the City used $1.6B from the RNBT to cover budget shortages.

It looks like the FY-2021 RHBT amount, $268.5M + $1.6B reflect the annual costs for retirees health insurance benefits. It would be very informative to see the distribution of these costs are for 1) retirees not eligible for Medicare, 2) Medicare eligible retirees with spouse under age 65, or children under age 26, and 3) the remaining Medicare eligible retiree.

Possible Cost Scenario

For argument sake I am going to make some assumptions and sketch out a very simplistic cost scenario. I would love to see the actual spreadsheets outlining the costs, also the profit projections for the insurance firm.

Assume the City

  • is paying $15,000/yr. for health insurance for each retiree under age 65 and each Medicare eligible retiree with a spouse under 65 or child under 27.
  • is paying $5,000/yr. for the other Medicare eligible retiree over age 65 .
  • is paying $3,000/yr. for welfare fund benefits for all retirees.
  • is paying on average $2,000/yr. for Part B premium refunds for each Medicare eligible retiree and spouse.

With the Medicare Advantage plan the City will still pay $15,000/yr and $3,000 for all retirees under age 65 and retirees with spouse ubder 65 and children under 27. But for the targeted Medicare eligible retires, I strongly suspect that the City will no longer have to pay the $5,000/yr for the second level health insurance or pay a greatly reduced amount.

It is my understanding that Medicare will pay the Medicare Advantage firm the full cost of the Part A and B insurance coverage being provided by the firm. They actually get a bonus from Medicare for every retiree they cover. I'm not sure about the welfare funds. There is huge incentive for the unions to hold onto them. Let me restate i am doing a certain amount of guessing since the City and the MLC have not been out front.

From my quick review of some of the CAFR's for the city pension funds, I estimate that 90% of the TRS retiree, 50% of the NYCERS and BERs retirees and 30% of the police and fire funds will get whacked by this new MA plan. This limits the savings. But will the City tell the retirees what the savings are? I don't think so.

Mandatory Concept

Medicare Advantage is available to medicare eligible persons on a voluntary enrollment basis. It is not availiable to their spouses or dependents unless they are personally Medicare eligible.

This concept of forcing retirees from Part B Medicare to a Medicare Advantage plan is massively complicated. I suspect that the City can not force retirees to enroll in the MA plan but the City can stop insurance coverage if the retiree chooses to stay with his/her original Medicare Part B. In addition, for current retirees who are covered by Medicare and who choose not to join the MA plan, they may have problems signing up for medi-gap insurance because they missed the one time unrestricted enrollment period. For retirees who do not live in the NY metro area this new plan will cause extra problems. It will caues complications for current employees who are close to retirement and are close to or over 65. Current retirees will want to sue over loss of contracted benefits but I expect that will not be successful.

If you pick Medicare Part B at age 65 instead of the City MA plan, it appears that you will get no health coverage from the city. You will probably have to pay for a medi-gap insurance to cover what is currently paid by the city plans. That is if you can afford to.

It is not clear how current Medicare retirees will handle their Part D drug coverage plan. Most retirees are paying a premium for the Part D drug coverage as part of the City's genral Senior Care coverage If the retiree chooses to not elect the MA plan, will they be able to convert to a standard Part D plan run by Medicare or a qualifying third party plan. Medi-gap insurance may offer drug coverage at a charge. The City does not pay for qualifying Part D drug coverage.

In this case, if you exercise your right to pick Medicare Part B, which you have paid for through Medicare taxes your whole working career, the City will escape paying any health insurance/welfare fund benefits for you.

The City is claiming that doctors who accept Medicare Part B must accept Medicare Advantage plans. That is not true. They know it is not true. A large majority of doctors do not accept Medicare Advantage plans. Some doctors don't accept Medicare but most do throughout the country. This makes Medicare Part B almost a universal plan.

If you are currently an active worker and have been looking for doctor who takes GHI, you will have a good sense of how many doctors will take the new MA plan.

There are huge problems with medical coverage in the US. Most of them are cost based. If you cut costs, you usually cut benefits.

If the City wants cut its health insurance costs for retirees, it needs to up front and state what they want retirees to pay to cover some of the rising costs. Why doesn't the City just state clearly that they want retirees to pay $1,000/yr towards health insurance costs? What the City is trying to do is cut costs (benefits) to retirees but not be honest about the amount. The City is trying to perform a magic act.