Retiree Health Benefits

By Charles P. Nash

Around November 1 of each year the status of retiree health benefits becomes a matter of immediate concern to the Emeriti members of the various Faculty Associations and the Emeriti Associations on all the UC campuses. In the abstract, it should also be of interest and concern to virtually everyone on the University payroll.

The UCD Emeriti Associations (UCDEA) and the UCD Retirees’ Association annually hold one or more joint meetings at which representatives from UCOP discuss the current state of health care funding, and try to gaze into the future. At such a meeting on May 11, 2006, Mark Esteban, Director of Health and Welfare Policy and Program Design, reported that the federal Government Accounting Standards Board had recently issued a new policy requiring pension plans—including those of the State of California and the University of California--to identify their unfunded liabilities for retiree health benefits, and ultimately propose ways to address them. He mentioned that at the time the sum in question was something like 10 billion dollars!

On behalf of CUCFA I sent him a letter pointing out that Retiree Health Benefits are a pay-as-you-go item in the UC budget rather than a contractual liability of the retirement system, so maybe UC could escape through that loophole. He wrote back saying that unfortunately, such was not the case. The new standards require UC to comply, beginning with the release of its 2007-08 financial reports, and UC is currently working with its Health and Welfare Actuary, Deloitte Consulting, to plan its compliance with the new policy.

At the CUCFA meeting in Oakland that Ian Kennedy is summarizing in this Newsletter the University representatives reported that Annuitant Health Care is currently funded via a 2.4% payroll tax levied on the budget of every unit in the University. That was a somewhat puzzling revelation because CUCFA’s lobbyists had long since noted that the UC budget submitted by the Governor in January frequently had in it an item labeled something like “adjustments to cover the cost of increased annuitant health and dental benefits.” It ranged from $1.7 million in 2000-01 through $34.4 million in 2004-05 to $521 thousand in 2005-06. At the most recent joint meeting of the two UCD annuitant organizations held on October 23, 2006, I asked Mr. Esteban to clarify this matter. He said that although it is true that UC often requested money for those purposes, it was very rarely appropriated. This year they did not even try.

At the October annuitants’ meeting it was reported that this year UC will provide health care benefits to more than 300,000 members, including dependents and retirees, at a total cost of more than one billion dollars. UC’s overall non-Medicare health care costs for 2007 increased by 11.7% vs. 6.4% in 2006. The state appropriated just over 7%, causing the sharp increase in the out-of-pocket health care costs of active employees that were recently announced. For annuitants affiliated with Medicare the overall cost increase was even larger—13.7%.

Ian Kennedy reported that at the Oakland meeting the CUCFA representatives were assured that the University would continue to support retiree health benefits, but “the organization of the plan and its structure will be reviewed in the next few years.” There can be no doubt that many different employee constituencies, including CUCFA and the Council of UC Emeriti Associations, will be looking over their shoulders during that review.