Premium change pinches workers

City employees will see insurance rates rise because of a federal accounting rule requiring the city to report its expenses.
Tuesday, August 29, 2006 | 12:00 a.m. CDT; updated 3:34 p.m. CDT, Friday, July 18, 2008

It’s back to business for Charles Hargrove and Dick Malon, a former assistant city manager and director of Water and Light, respectively.

Hargrove, 63, and Malon, 68, retired years ago, but now they’re serving on a task force that’s confronting the newest issue facing Columbia’s roughly 1,100 employees and 300 retirees: rising insurance premiums.

A new federal accounting rule is forcing government agencies, public schools and public universities to begin reporting their nonpension benefits, including medical and dental insurance, on their yearly financial reports by 2008.

Hargrove said the new rule, established by the Government Accounting Standards Board and known as GASB 45, comes as no surprise.

“It’s been talked about for a long time,” he said. “I just didn’t think it would have this effect.”

The change, city officials and retirees say, will increase insurance liability for retirees, who pay for insurance offered through the city. Many will find the insurance unaffordable, and other current employees — particularly police and firefighters — will find themselves postponing retirement until a much older age because their insurance would prove too costly otherwise.

To date, nonpension retiree benefits have not been recorded on the city’s annual financial statements, which helped keep insurance premiums low. The GASB, which wrote Statement 45 in 2004, has said the rule is intended to simplify financial statements by treating “other pension employment benefits” as actual compensation.

But the rule does anything but simplify the family finances of retirees, Hargrove and Malon said. In some cases, city projections show the rule could increase a retiree’s annual premiums by more than five times.

The Human Resources Department notified retirees of the change through a letter, then held an informational meeting in July to explain the rule and the city’s strategy for dealing with it. Hargrove and Malon helped form the Retiree Health Plan Task Force that includes 11 retirees and five current employees.

City staff is proposing that Columbia divide the city’s self-insured group insurance into employed and retired workers. By splitting the risk pools, the city can keep premiums down for current employees and their families, a letter from the task force to Mayor Darwin Hindman and the City Council said. But the side effect, the task force said, is a steep rise in costs for current and future retirees, who generally make far more insurance claims.

To date, Columbia has been covering its employees’ health insurance on a pay-as-you-go basis from year to year. It’s a benefit that will cost the city about $6.5 million this fiscal year, said Human Resources Director Margrace Buckler. The employees pay premiums for their dependents and spouses.

The city’s plan to split the risk pools would increase insurance premiums for employees’ dependents and their spouses by a “relatively small” 12.5 percent, Buckler said. The amount of money that the city will contribute will rise from $457.26 to $474.76 in the first year.

But projections from the city show that premiums for employees’ spouses and dependents, along with those for retirees, will be hit much harder. For example, a retiree older than 65 who is paying $2,133 for insurance would pay about $11,523 in 2013.

The plan to split the risk pools, though, is only for the 2007 fiscal year, Buckler said. She added that the city will try to find a permanent solution in fiscal 2008.

Hargrove, Malon and about three dozen retirees attended the City Council meeting on Aug. 21 to oppose the plan, which already is reflected in the City Council budget. Intended to ease the effects of the rule, the plan does the opposite, Malon said.

In the letter from the task force to the mayor and the City Council, both Malon and Hargrove said it’s “not necessary for the council to make any quick decisions on this matter.”

While Hargrove and Malon concede the issue won’t adversely affect them, they worry about those who aren’t as well-off. For those who are younger than 65 and don’t receive Medicare, their premiums might exceed their savings.

“We have people from all pay scales of the city that are retired,” Malon said. “Not everybody was a line foreman.”

Dan Hemmelgarn, a former division chief for the Columbia Fire Department, said that if the City Council adopts the current plan, he’ll have a tough decision to make for his wife and two college-age children.

“I won’t have any choice but to drop my city insurance,” Hemmelgarn said. “It will be unaffordable.”

Hemmelgarn also said that police and firefighters, who normally can retire after 20 years, will have to put off retirement to afford health insurance.

“If I was a current employee I would postpone my retirement as long as I could,” he said.

Malon agreed: “You are going to see 67-year-old firefighters.”

The task force is proposing at least nine alternatives to the city plan, including supplementing the city’s retiree insurance with Medicare Part D and examining what other local and government institutions are doing.

Buckler said the city has been working with consultants since GASB 45 was established.

“Our consultants have (been warning) us repeatedly over the years about our retiree benefits,” Buckler said.

“The whole GASB thing, I don’t think is fair from a human point of view,” Buckler said, adding that the city has some time to deal with it.

“If I worried that the world was going to end over this, I would be depressed.”

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