These suggested reforms can save taxpayers hundreds of millions of dollars while keeping the system viable
By Steve Levy
One of the reasons it’s too expensive to live in New York State is the benefits package a public-sector employee receives once they retire. The retirement benefits are funded by the taxpayers, who have to pay more into the system as the price tag increases. But it doesn’t have to be that way.
A simple, doable reform, such as a tweaking of the healthcare packages for retired public employees in New York, can save taxpayers hundreds of millions of dollars annually while still providing needed care for retirees.
While most private-sector employees shift over from their work insurance to Medicare when they hit the age of 65, most retired teachers, as well as many other public-sector retirees, get to keep additional healthcare coverage —- paid in large part by the taxpayer.
And while most residents pay for supplemental Medicare Part B (which pays for non-hospital healthcare services) out of their own pockets, the overwhelming majority of retired teachers and other public employees receive 100% taxpayer reimbursement for this coverage.
Property taxes on Long Island are amongst the highest in the nation. School district taxes account for approximately two-thirds of the property tax burden. The lion’s share of district costs relates to personnel. That includes not only salaries that average above $100,000 in most districts, but also enormous perks, including Cadillac-type healthcare packages for present and retired employees. Nearly 31,000 educators on Long Island earn six figures.
Equally significant to these lofty salaries is the fact that the fringe benefits can amount to 50% of the actual salary itself. Thus, for every $100,000 paid to an average teacher, another $50,000 must be allotted to cover the pension and health care systems related to that single individual.
A driving force behind these enormous fringe benefit costs is the requirement built into many contracts that force taxpayers to provide additional no-cost healthcare coverage to retirees beyond basic Medicare in a manner that no private sector employee can fathom.
Districts may pay up to $30,000 for a family plan for every teacher currently on the payroll. The Empire Center, a fiscally conservative think tank, notes that when the public employee healthcare fund was first created in 1957, the employer share of the premium was 50 percent for individual coverage and 35 percent for additional dependent coverage. Today, teachers outside New York City pay an approximate 14% premium charge for a single plan and 16% for a family plan. Teachers within the city, just like retirees in Suffolk and some of the counties, do not contribute to their plans at all.
New York, with roughly six percent of the national population, owes 25 percent of the national debt and has a $360 billion total taxpayer obligation for public-sector retiree healthcare. While the state’s pension fund obligations are covered with reserves, few, if any, reserves exist for health care,
Most districts on Long Island provide what’s called a wraparound Medicare package, which permits the retiree to receive the same type of care they enjoyed through the Empire Plan, which many current employees have. Since Medicare is picking up a large part of the retiree’s needs, the district is no longer on the hook for the usual $30,000 plan. Yet it still must pay a sizable amount.
That’s because taxpayers pay for the Part B coverage, which costs in the neighborhood of $2,000 per lower-income retiree annually, or $4,000 for a couple — and up to $13,000 per year for a higher-earning couple.
That figure multiplied over the 175,798 public retirees creates a burden of $352 million annually on New York taxpayers, and double that if both spouses are covered.
Additionally, while both public and private-sector retirees will get 80% of their hospital bills covered by Medicare (Part A), public-sector employees get taxpayer assistance for paying for Medigap, which pays the other 20%.
The good news is that. while Article V, Section 7 of New York’s state constitution treats pension income as a contractual entitlement that cannot be “diminished or impaired,” the state’s highest court has ruled that this provision does not apply to retiree health insurance.
Past calls to reform this system have fallen on deaf ears in Albany. The Empire Center proposed four significant changes to state law over a decade ago that would have saved taxpayers over $300 million annually. Obviously, the savings would be far greater today:
- Preserve health benefits for already retired workers, but stop reimbursing Medicare Part B for those over 65, and require early retirees to pay larger premiums.
- Reserve the greatest benefit to those who have worked the longest.
- Clarify existing law to allow trust funds to cover adjusted liabilities, but mandate that required contributions to the fund are based on returns from low-risk investment strategies.4. Require at least ten years of service for new employees to be eligible for retiree health insurance coverage.
While early retirees in large private employer plans must pay an average of 51 percent of their medical costs, New York State covers an average of 91 percent of premiums for all retirees. This scenario is simply unsustainable. Addressing it now will not only save taxpayers money immediately, but will help ensure that the system remains viable for future retirees.
Steve Levy is Executive Director of the Center for Cost Effective Government, a fiscally conservative think tank. He served as Suffolk County Executive, as a NYS Assemblyman, and host of “The Steve Levy Radio Show.”