The State Pension & Health Benefit Study Commission, a bipartisan panel appointed by Governor Christie to look at pension and health benefit issues, released a final report December 6. Commission members Tom Healey and Tom Byrne joined the Governor to unveil the findings at a press conference earlier this week.
The commission called for scaling back retiree health benefits and dedicating the savings to pension funding, a prospect it conceded has been politically unpalatable to date. The specific recommendations by area are as follows:
Health Benefit Recommendations
• Public employee health benefits should be aligned with those in the private sector at an Affordable Care Act (ACA) gold level, with meaningful incentives for employees to select cost-effective plans. Consideration should be given to creating health savings accounts (HSAs), and permitting employees who desire a higher level of coverage to do so at their own expense. The reduction in premiums will lower employee premium contributions, particularly for those employees hard-pressed by the contribution requirements under Chapter 78.
• Early retirees would purchase coverage through a private exchange funded through Retirement Reimbursement Accounts (RRAs) covering the cost of a gold-level plan. This mechanism would increase flexibility and insurer choice while avoiding potential ACA “Cadillac Tax” issues.
• Medicare-eligible retirees would continue to receive their current level of coverage without additional costs to them, but at lower cost to employers through a Medicare Advantage Prescription Drug program paid through employer-funded RRAs.
• Focus on root causes of excessive cost of care:
o Fix the out-of-network reimbursement problem;
o Encourage use of tiered networks of high-quality, cost-effective providers; –Discourage use of emergency rooms for non-emergent care;
o Provide incentives for beneficiaries to be educated consumers;
o Increase use of generic and mail-order drugs; and
o Empower primary-care physicians to focus on patient outcomes.
Reforms of this nature do not shift costs, but reduce them for employers and employees alike. Of the $1.4 billion in savings projected from the Commission’s proposals, less than $0.2 billion reflected cost shifts to beneficiaries, an amount which would be subject to further potential mitigation through HSA funding.
• Re-examine the role of early retirement in the public sector. Early retirement health benefits are extremely expensive, and their availability is a key enabler of double- dipping abuses that have a corrosive effect on the system as a whole. The availability of early retirement health benefits should be limited to where they are necessary to facilitate early retirements that are truly in the public’s interest.
Pension Specific Recommendations
• Use health benefits savings to bolster pension funding. It is the only available source of funds of the magnitude necessary to address the pension funding shortfall.
• Stop the accrual of new benefits under the existing pension plans. This will prioritize resources to preserving benefits already earned to that point without affecting pensions of existing retirees.
• Provide future retirement benefits for current and new employees under cash balance plans, with supplemental transition funding for existing mid- career employees. Cash balance plans combine account features of a 401(k) with benefit guarantees associated with defined benefit plans. Account balances will grow each year through employer “pay credits” based on salary, employee contributions, and interest credits tied to market returns, subject to a minimum guarantee. The guaranteed benefits and directed investment elements of cash balance plans would address the primary criticisms of 401(k) plans, while also minimizing investment return risk.