Commentary: Let state retirees keep their drug plan if they pay the whole tab; plus a comment from Moody’s

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Photo by Gatis Gribusts with Flickr Creative Commons License

By Jim Thompson

For MarylandReporter.com

The State of Maryland is stripping prescription drug coverage from state retirees who are eligible for Medicare.  Effective January 2019, retirees must buy an off-the-shelf Medicare prescription drug plan from the insurance industry.

Based on 2018 costs, the state government will save $1,441 a year for each retiree it dumps.  Retired couples will save even more—$2,389.

These savings are aimed at reducing Maryland’s unfunded pension liabilities.  For those Maryland taxpayers who can sleep at night, pension liabilities have been a nightmare for decades. [See the comment by the comment by Moody’s Investor Service, their bond-rating agency below.]

So, in the wake of this money-saving reform, are state legislators and the governor’s office basking in voter appreciation?

Not exactly.  They’re basking in complaints and expressions of anguish, shock, disappointment and anger from state retirees.

Here’s a fix

Well, here’s one fix that won’t cost the State of Maryland a dime:

Let retirees keep their current Medicare drug plan if they’re willing to pick up the whole tab.

Based on 2018 rates, individual retirees would have to pay an extra $120 per month to make up for the state share.  Retired couples would pay an extra $199.

That’s a lot, but Maryland’s prescription drug plan is a superior plan.

Off-the-shelf Medicare drug plans are full of complexity, tricks and loopholes.  More importantly, the state plan features a $1,500 ceiling on annual drug expenses.  Regular Medicare drug plans are unroofed.

For 2019, Medicare estimates that enrollees in a regular drug plan will spend $8,139 out of pocket before Medicare and the insurer start picking up 95% of most additional drug expenses.

I believe many retirees would pay four times what they pay now to keep the plan they’re used to.  And again, it wouldn’t cost the state a dime to help.

So how about it?  An understanding subscribed to by legislative leaders and the governor’s office could permit Maryland retirees to keep their current Medicare drug plan on a voluntary and full-cost basis until the law can be amended accordingly.

The words I long to hear are: “If you like your plan, you can keep your plan.”

“But you’ll pay through the nose” are words I can put up with.

Jim Thompson lived in Montgomery and Howard counties for 36 years.  His spouse is retired from the state government.  They now live in Palm Valley, Texas.

Moody’s says lawsuit raises questions about legal status of Maryland retiree health benefits, a potential credit negative
By David Jacobson

Vice President, Communications – Public Finance Group

Moody’s Investors Service

In its new Weekly Credit Outlook for Public Finance released Thursday (page 5), Moody’s notes a recent lawsuit filed in Baltimore City Circuit Court challenged the State of Maryland’s (rated Aaa/stable outlook) shift of Medicare-eligible retired state workers to Medicare Part D prescription drug coverage beginning in 2019, which was part of retiree health reforms enacted in 2011.

If the plaintiffs are successful, the result would significantly increase liability for Maryland’s retiree health benefits (also known as other post-employment benefits or OPEBs) and cast doubt on the degree of legal flexibility wielded by states to change retiree health benefits, a credit negative.

Maryland’s OPEB liability fell 40% to $9.5 billion from nearly $16 billion when the reforms were enacted in 2011, a credit positive for the state, which has relatively high long-term liabilities.

The Maryland case is significant because state law appears to grant its secretary of budget and management the authority to set retiree health benefits.

Analysis of the legal protections for these benefits nationwide finds they are stronger when granted through collective bargaining agreements rather than by statute. However, this distinction is influenced by the specific language of each case and established case law, which varies by state. Factors such as the wording of employee benefit handbooks can conceivably be construed as establishing some level of contractual rights, which underscores the ambiguity of retiree health benefit liabilities across jurisdictions.

Compared to public sector pensions, retiree health benefits are less likely to be contractually protected in most states. Some states are unambiguous in the protection of OPEB benefits, such as Illinois.

Maryland’s 2011 pension reforms primarily impacted new employees, but the OPEB changes shifted current as well as future retirees to Medicare Part D for prescription drug coverage, allowing the immediate reduction in OPEB liabilities.

Moody’s declaration of “credit positive” or “credit negative” does not connote a rating  or outlook change.  It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer.