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.
Graphic 4: Percentage of Large U.S. Employers Offering Retiree Medical Plans to New Hires, 1993-2009
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.
Graphic 5: Comparison of Retiree Health Care Benefits for 24 Major Michigan Employers and MPSERS and MSERS
24 Major Michigan Employers’ Salaried Employees Retiree Medical Benefits
- 17 (71%) provided no coverage, ceased offering coverage to new employees or created transition arrangements reducing coverage for existing employees
- 4 (17%) offered coverage with a 100 percent retiree contribution
- 3 (12.5%) offered employer-subsidized coverage
Source: 2010 Aon Hewitt Benefit SpecSelectTM.
MPSERS Retiree Medical Benefits
- MPSERS pension recipients, including both MIP and non-MIP members, are generally eligible for the following benefits.[†]
- Pension recipients are eligible for up to a 100 percent employer-paid health plan[‡] and a 90 percent employer-paid dental, vision and hearing coverage
- Hires before July 1, 2008:
Receive between 10 percent and 100 percent of the maximum employer contribution for between 21 and 30 or more years’ service
Hires after July 1, 2008:
If retiree is less than age 60, employer pays 90 percent of the maximum amount if the employee has 25 years or more of service; if the retiree is age 60 or older, the employer pays between 30 percent and 90 percent of the maximum employer contribution for between 10 and 25 or more years’ service
- Retirees pre-Medicare pay an amount equal to the Medicare Part B Premium
- As of July 1, 2010, MPSERS active members are required to contribute 3 percent of their compensation toward payment of MPSERS retiree health care benefits[§]
Source: Michigan Public School Employees’ Retiree Health Benefits 2009 Annual Actuarial Valuation Report and Public Act 75 of 2010.
MSERS Retiree Medical Benefits
As in Graphic 3, the description below applies to most MSERS members (exceptions occur for corrections officers and some others).
- As of Nov. 1, 2010, and until Sept. 30, 2013, MSERS active members are required to contribute 3 percent of their compensation toward payment of retiree health care benefits.
Defined-Benefit Participants (MSERS Tier 1)
- All MSERS Tier 1 retirees are eligible for benefits
- MSERS Tier 1 retirees receive 90 percent employer-paid health insurance premiums and 90 percent employer-paid dental and vision insurance premiums
Defined-Contribution Participants (MSERS Tier 2 in general)[¶]
- Eligible after 10 years’ service and may receive benefits at age 60 or at age 55 with 30 years’ service
- Hires before April 1, 2010:
Receive between 30 percent and 90 percent of medical, dental and vision insurance premiums for between
10 years’ and 30 years’ service (essentially 3 percent x years of service)[**]
Hires after April 1, 2010
Receive between 30 percent and 80 percent of medical, dental and vision insurance premiums for 10 or more years’ service (essentially 3 percent x years of service with a cap at 80 percent)[††]
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, http://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.