This Technical Bulletin discusses problems related to offering medical benefits to retirees

Tallent, Michael

English

University of Tennessee, Knoxville: Trace

University of Tennessee, Knoxville TRACE: Tennessee Research and Creative Exchange MTAS Publications: Technical Bulletins Municipal Technical Advisory Service (MTAS) 5-10-1985 Technical Bulletins: Medical Benefits for Retirees Michael Tallent Municipal Technical Advisory Service Follow this and additional works at: https://trace.tennessee.edu/utk_mtastech  Part of the Public Administration Commons The MTAS publications provided on this website are archival documents intended for informational purposes only and should not be considered as authoritative. The content contained in these publications may be outdated, and the laws referenced therein may have changed or may not be applicable to your city or circumstances. For current information, please visit the MTAS website at: mtas.tennessee.edu. Recommended Citation Tallent, Michael, "Technical Bulletins: Medical Benefits for Retirees" (1985). MTAS Publications: Technical Bulletins. https://trace.tennessee.edu/utk_mtastech/203 This Bulletin is brought to you for free and open access by the Municipal Technical Advisory Service (MTAS) at TRACE: Tennessee Research and Creative Exchange. It has been accepted for inclusion in MTAS Publications: Technical Bulletins by an authorized administrator of TRACE: Tennessee Research and Creative Exchange. For more information, please contact trace@utk.edu. • • • TECHNICAL BULLETIN MUNICIPAL TECHNICAL ADVISORY SERVICE THE UNIVERSITY OF TENNESSEE IN COOPERATION WITH THE TENNESSEE MUNICIPAL LEAGUE U.T. El4-1050-00-001-85 May 10, 1985 MEDICAL BENEFITS FOR RETIREES by M. Michael Tallent, MTAS Management Consultant Some Tennessee cities already may offer medical insurance benefits to their retirees. Other cities may be considering offering such benefits. If so, possibly the greatest factor to consider is cost. This is a two-fold problem for retiree medical benefits: it is affected by the increasing cost of medical care, which rises even more rapidly for people 65 and over; and it is affected by reduction of Medicare participation as the primary or secondary source o f  coverage. Medicare's past reductions and highly possible future reductions result in the other provider, i.e., the city and its insuror, having to assume a larger percentage of the costs. Cities which currently provide retiree coverage or may be considering pro­viding such coverage, should conduct an analysis of costs that looks well into the future, perhaps as much as 20 years. Such an analysis might consider life expectancies, medical cost inflation, Medicare benefits, plan of benefits, and changes in the utilization of health care (as the retired workforce grows older, utilization will increase.) An example .in Texas Town and City utilized current life expectancies, an annual medical cost inflation rate of six per cent, stable Medicare benefits, and annual utilization increases of five per cent. The result was a 616 per cent increase from 1983 to 2000 in what the employer-sponsored plan paid per retiree. If an analysis is conducted and the result is a cost that the city wishes to avoid, the city might consider capping its participation in retiree premiums or modifying its plan as it pertains to retirees. Even if cities do not review their benefits program or conduct a cost analysis, they should be aware of what they are providing and how it might be interpreted. A 1984 federal case, involving Bethelehem Steel Company, found a federal court agreeing with the company's retirees that: a. Employee handbooks did not specify that health and life benefits were not guaranteed, b. Employee literature implied that benefits were permanent, and I I c. :Some. personire). ·o'f:f,toers. :.,tl.ad. ·told retirees that .they would have the benefits for 1ife,, .. , • This case s:telllmed from the compaily's ·modificati6il of its health benefits for retirr;>es as aµ attempt to . <;>ffset the 6011.(inual increases ir\ health,. insurance. These moalfiaat:l.bns,. :l.rictuded the .. iita'nc\ill<d ''L9wer·fog . . of benefit;> or the i.ncreasing of retiree� ·� riemiuln ·:c0sbs· • .  '. . · .. ' .• · Even :though 't•his case ·ptolfab1y wHl. •be app'e�iled an-(! m!(y 'a'lten :g·0 to the Supreme (lOutt, ibt ·s•hbu1d be t)l!>te'd·· 'Cities ,ptovid1ng O·l' ant]/Cipa•t'.:tng ,ptoviail.:ng med'.:f:clliJ. ib'ene!fi't's :to retiree·s, ·and :pethap's ·e.veri :t'<'> ·active etfiployees, should· review their han.'i'bo'oks and other printed material to .J,e sure there ls rt(!lt 'an !l.liJt>'H.:ca'J:il�n of rpet\\illf!ia'lr!!e or gu-a•r·an­.tee. ·Fur.·t•herm0,re,. admi11!st·ra't·tve Pe·tsonnel s•hou•t<l 'b·e caU:tl'oned against state-Jl)ents cthat .lQ!pl,y a .permanent .or,..gu=a1V't>�ed.:em1 d-ilic•ail�''b·en:&£�i't- !L's-ifH:'<!>vl'iled-r--· -. -- --··-- ·-·---·-- ·. 1,f medl:ca1 ·aos:ts an.:! th'e .ttnsq.):{lnce :t0 cQve•r :tiJrP's'e ·c()sts ·c·ontinue 1:0 grow at the pace est�oil�hed 11  t·h� pas·�. '.fiLve :to t'el1 yea:ts, cltl:.es wi!Ll have to be more cau�ious regar.:l!l:)lg the 'enhah·certient <'lr · e'i<bens-:!:<;)11 pi; bene!fiVJ;s, e specially to -retirees. Municipal. Technical Advisory Service 891 20th Street Non-Profit Org. ,U;S. ·POSTAGE PAID Klioxvllle, Tenn. Permit No. 870 The University of Tennessee Knoxville, TN 37996-4400 • 

Technical Bulletins: Medical Benefits for Retirees

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Technical Bulletins: Medical Benefits for Retirees

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University of Tennessee, Knoxville: Trace