June 9, 2011
Although lawmakers have been considering ways to cut the State of Illinois’ costs for state retiree health insurance, the General Assembly adjourned on May 31, 2011 without taking action on the issue.
A bill (Senate Bill 175) to require all retirees to pay a share of the cost for insurance premiums cleared the Senate Executive Committee on May 29 by a vote of 9 to 6. However, the sponsor, Senator Jeffrey Schoenberg, said he did not request a vote by the full Senate because many legislators had concerns about the measure.
Senator Schoenberg is co-chairman of the General Assembly’s Commission on Government Forecasting and Accountability, which earlier this year hired a consulting firm to study the State’s retiree health program. As previously noted in this blog, the study by Mercer concluded that the State could save between $260 million and $300 million in FY2012 by increasing the share of health insurance premiums paid by retirees and their dependents from the current average of roughly 9% to approximately 50%.
State of Illinois employees who retired before January 1, 1998 and those who retired after that date with at least 20 years of service do not pay healthcare premiums. Exceptions include General Assembly members, who can retire with as few as four years of service and not pay premiums, and judges, who can retire with as few as six years of service and not pay premiums. As of February 2011, 91.0% of the 81,833 retirees covered by the group insurance program were not required to pay any premiums.
According to the Mercer study, state retirees pay an average of 2.5% of premium costs and their dependents pay 27%, for a combined average of roughly 9%. Health coverage for 113,669 retirees and their dependents is expected to cost $750.9 million in FY2012, with $680.6 million paid by the State and $70.3 million by retirees and their dependents. These numbers do not include out-of-pocket costs such as co-payments and deductibles.
Following recommendations by Mercer, Senate Bill 175 proposed that premiums for retirees and dependents be based on a retiree’s years of service, age when benefits were first received and annual state pension income. Retirees with higher pension incomes are assumed to be able to afford to pay a larger share of premium costs. For example, a retiree with less than $15,000 of pension income would pay an average of between $232 and $2,877 a year for health insurance, depending on years of services and age when benefits commenced. A retiree with more than $125,000 of pension income would pay from $4,920 to $8,255 a year, depending on years of service and age when benefits started. Actual required contributions would also depend on whether the retiree is covered by Medicare and which state health plan is selected.
Senate Bill 175 was strongly opposed by the State’s largest union. Council 31 of the American Federation of State, County and Municipal Employees (AFSCME) contended that the bill would burden retirees with modest incomes. AFSCME said the bill failed to advance in the General Assembly because of lobbying by retirees and the union’s professional lobbyists. Under the bill, retirees who were union members would not pay increased health insurance premiums until after the current contract expires on June 30, 2012. Non-union retirees would begin paying higher premiums on January 1, 2012.
Senator Schoenberg said he plans to work on revising the bill over the summer. The legislature is scheduled to reconvene on October 25, 2011 for the fall veto session.