Separate yet related to the pension issue is the challenge of predictability and affordability of future retiree medical costs.
The existence of employer-provided retiree medical coverage in 2010 is significant unto itself, given national trends and the Michigan private-employers’ data from the Aon Hewitt Survey (see Graphics 4 and 5). Graphic 4 reflects a national survey of large employers conducted by Mercer, an international human resources consulting firm, indicating the decline in employer-sponsored retiree health care nationwide. Although companies are somewhat more likely to offer health care coverage to retirees who are not yet eligible for Medicare,[*] the number who offer either kind of coverage are clearly in the minority.
Source: Mercer’s National Survey of Employer-Sponsored Health Plans. See “In a Tough Year, Employers Hold the Line on Health Benefit Cost Increases” (Mercer, Nov. 18, 2009), http://www.mercer.com/summary.htm?siteLanguage=100&idContent=1364345 (accessed Sept. 6, 2010).
The recent changes affecting the entire auto industry underscore this point. The norm where coverage continues to exist is in an environment of plans closed to new hires, reduced benefits, increased premiums — 100 percent employee-paid, in several cases in the Aon Hewitt survey — or liability caps defining an employer’s future cost. Moreover, continuation of other insurances, such as dental and vision coverage, adds to the value of MPSERS and MSERS benefit packages.
Graphic 5 once again draws upon the 2010 Aon Hewitt survey for 24 large Michigan companies. The descriptions of the MPSERS and MSERS benefits are based upon their Sept. 30, 2009, actuarial valuation reports, as well as Public Act 75 and Public Act 185. As in Graphic 3, these descriptions are not meant to provide detailed explanations of these benefit plans.
Source: 2010 Aon Hewitt Benefit SpecSelectTM.
Source: Michigan Public School Employees’ Retiree Health Benefits 2009 Annual Actuarial Valuation Report and Public Act 75 of 2010.
Source: Michigan State Employees’ Retiree
Health Benefits 2009 Annual Actuarial
Valuation Report, Public Act 185 of 2010 and Wicksall, “Senate Bill 1226 (H-38
as Amended).”
[*] Companies more frequently offer pre-Medicare health coverage than Medicare supplementary insurance because the pre-Medicare benefit is generally more attractive to employees. From the employer’s perspective, pre-Medicare insurance has the advantage of ending predictably when the retiree turns 65, limiting the employer’s liability.
[†] “Michigan Public School Employees’ Retiree Health Benefits 2009 Annual Actuarial Valuation Report” (Gabriel Roeder Smith & Company, 2010), C-1. There are some exceptions for members who have retired from deferred vested status.
[‡] The health plan is referred to as the “Master Health Plan” and is authorized by the MPSERS board and the Department of Management and Budget. MCL 38.1391; MCL 38.1304(4).
[§] Bethany Wicksall, “Legislative Analysis: Public School Retirement Revisions, Senate Bill 1227 as Enacted” (Michigan House Fiscal Agency, 2010), 1, https://www.legislature.mi.gov/documents/2009-2010/billanalysis/House/pdf/2009-HLA-1227-7.pdf (accessed Aug. 3, 2010). As noted earlier, several public school employees have filed a lawsuit claiming this provision to be unconstitutional, and a court order has temporarily placed collection of the 3 percent contribution into an escrow account, rather than the MPSERS retiree health care trust fund established by the Legislature.
[¶] There are exceptions. MSERS Tier 1 members who opted to join the MSERS Tier 2 defined-contribution pension plan have the same retiree health care eligibility and benefits as Tier 1 members. There are also “special retirement eligibility conditions for corrections officers, conservation officers, or retirees under early retirement window programs.” See “Michigan State Employees’ Retiree Health Benefits 2009 Annual Actuarial Valuation Report” (Gabriel Roeder Smith & Company, 2010), C-1. See also the discussion of Public Act 185 in the introduction of this study and the accompanying footnotes.
[**] Technically, Public Act 185 provides an additional cap on the share of the premium paid by MSERS, but at present, this cap does not generally affect the calculation described in the main text above. See Public Act 185 of 2010, Sec. 68(4); Bethany Wicksall, “Legislative Analysis: State Employees’ Retirement Revisions, Senate Bill 1226 (H-38 as Amended),” (Michigan House Fiscal Agency, 2010), 2; and “Michigan State Employees’ Retiree Health Benefits 2009 Annual Actuarial Valuation Report” (Gabriel Roeder Smith & Company, 2010), C-1.
[††] Technically, as in the previous footnote, the arrangement is more complex. See Public Act 185, Sec. 68(4); see also Bethany Wicksall, “Legislative Analysis: State Employees’ Retirement Revisions, Senate Bill 1226 (H-38 as Amended),” (Michigan House Fiscal Agency, 2010), 2.