The Cost of Health Care: A Growing Problem for OC Taxpayers
Posted by: Scott W. Graves | 07/31/2007 10:10 PM
By Jerry Slusiewicz
Health care costs across the nation are rising faster than the overall rate of inflation. Last year premiums for employer sponsored health insurance rose 7.7%, a slower rate than the 9% increase the prior year and 11% in 2004. While the slowdown is welcome, overall inflation and wage gains over the same time frame have averaged only 3.5%. Premiums for family medical coverage have increased by 87% since the year 2000.
From a county perspective, more money is going into the cost of healthcare for its workers and retirees and less money is going for education, public safety, and infrastructure. Average annual premiums for employer sponsored coverage are $4,242 for single coverage and $11,480 for family coverage. The average percentage of premiums paid by employees is statistically unchanged over the last several years at 16% for single coverage and 27% for family coverage.
Orange County workers pay less in premium percentage than most other industries. The cost to the county per employee is running higher than industry standards. The vast majority of workers face co-payments and upfront deductibles when they go to the doctor or purchase prescription drugs. For 75% of all industry employees, the average co-pay ranges from $15 for generic drugs to $25 for brand name drugs. OC employees participating in the HMO plan pay $10 for generic and $15 for brand names. The deductible which must be paid before insurance begins is also lower for OC employees than the industry average.
Simply stated, OC employees on average have healthcare benefits provided to them at a cheaper rate than the taxpayers who support those benefits. For the 16,500 county employees, the total annual cost to the taxpayer for health and welfare benefits is over $115,500,000. (Statistics do not include 1,800 sheriffs and all retirees.)
The nation is increasingly dividing into two classes of workers: those who have government benefits and those who don't. The gap is accelerating in every way--pensions, medical benefits, and retirement ages. There is a new world of retirement; government employees who have secure benefits and private workers who increasingly are on their own.
Governments' generosity could have serious consequences for taxpayers. Orange County recently slashed its unfunded liability of promised retiree medical benefits from $1.4 billion to $600 million. This was done by shifting some of the higher medical costs to the retirees, but did nothing to address lowering medical costs. Increasing life expectancy, decreasing retirement ages, and escalating medical costs are the trifecta that is causing this unfunded medical benefit liability.
Supervisor John Moorlach commented, "We still have an unfunded liability, but we're working to reduce it further. Elected officials love to give generous retirement benefits because they don't cost anything today and they'll be out of office when the payments come due. And the public? Eyes droop with boredom when you bring up the topic, but whose money is it anyway?"
Saving money is smart. The goal is to deliver cost effective insurance without cutting benefits. There are several reforms that can be implemented to reduce the cost to the taxpayer. The first would be to cut parts of the plan that are unnecessary. The biggest cost is the prescription drug issue. Increasing the cost of the co-pay for brand name prescription drugs to industry averages would encourage the use of generics. This would result in a huge savings to the county. Second would be to increase the out of pocket front deductible to the industry average. This would encourage county employees and retirees to think twice before running to a doctor.
The county must also implement a "two tiered" plan for future workers, to avoid a taxpayer disconnect. The ability to modify benefits for current and past workers may be limited if the workers have vested benefit rights. The solution would be to change benefits for future employees. Increasing premiums, co- payments, and deductibles are included in these options.
The California Foundation for Fiscal Responsibility has proposed increasing the minimum retirement age requirement for county employees from 55 to 62 and upping the standard for police and firefighters from 50 to 57.
The baby boom retirement era will present unprecedented changes to all retirement benefit programs. Some things broken need to be fixed. Open and public negotiations need to be held when discussing future county employee bargaining agreements. To answer Moorlach's earlier question, it's our money!
Jerry Slusiewicz is the principal of Pacific Financial Planners LLC in Newport Beach, California. He is also host of Money Talks which airs on Saturdays AM 740 & 830. Mr. Slusiewicz can be contacted at 800-449-9501 or on his website: www.yourmoneytalks.com.
Health care costs across the nation are rising faster than the overall rate of inflation. Last year premiums for employer sponsored health insurance rose 7.7%, a slower rate than the 9% increase the prior year and 11% in 2004. While the slowdown is welcome, overall inflation and wage gains over the same time frame have averaged only 3.5%. Premiums for family medical coverage have increased by 87% since the year 2000.From a county perspective, more money is going into the cost of healthcare for its workers and retirees and less money is going for education, public safety, and infrastructure. Average annual premiums for employer sponsored coverage are $4,242 for single coverage and $11,480 for family coverage. The average percentage of premiums paid by employees is statistically unchanged over the last several years at 16% for single coverage and 27% for family coverage.
Orange County workers pay less in premium percentage than most other industries. The cost to the county per employee is running higher than industry standards. The vast majority of workers face co-payments and upfront deductibles when they go to the doctor or purchase prescription drugs. For 75% of all industry employees, the average co-pay ranges from $15 for generic drugs to $25 for brand name drugs. OC employees participating in the HMO plan pay $10 for generic and $15 for brand names. The deductible which must be paid before insurance begins is also lower for OC employees than the industry average.
Simply stated, OC employees on average have healthcare benefits provided to them at a cheaper rate than the taxpayers who support those benefits. For the 16,500 county employees, the total annual cost to the taxpayer for health and welfare benefits is over $115,500,000. (Statistics do not include 1,800 sheriffs and all retirees.)
The nation is increasingly dividing into two classes of workers: those who have government benefits and those who don't. The gap is accelerating in every way--pensions, medical benefits, and retirement ages. There is a new world of retirement; government employees who have secure benefits and private workers who increasingly are on their own.
Governments' generosity could have serious consequences for taxpayers. Orange County recently slashed its unfunded liability of promised retiree medical benefits from $1.4 billion to $600 million. This was done by shifting some of the higher medical costs to the retirees, but did nothing to address lowering medical costs. Increasing life expectancy, decreasing retirement ages, and escalating medical costs are the trifecta that is causing this unfunded medical benefit liability.
Supervisor John Moorlach commented, "We still have an unfunded liability, but we're working to reduce it further. Elected officials love to give generous retirement benefits because they don't cost anything today and they'll be out of office when the payments come due. And the public? Eyes droop with boredom when you bring up the topic, but whose money is it anyway?"
Saving money is smart. The goal is to deliver cost effective insurance without cutting benefits. There are several reforms that can be implemented to reduce the cost to the taxpayer. The first would be to cut parts of the plan that are unnecessary. The biggest cost is the prescription drug issue. Increasing the cost of the co-pay for brand name prescription drugs to industry averages would encourage the use of generics. This would result in a huge savings to the county. Second would be to increase the out of pocket front deductible to the industry average. This would encourage county employees and retirees to think twice before running to a doctor.
The county must also implement a "two tiered" plan for future workers, to avoid a taxpayer disconnect. The ability to modify benefits for current and past workers may be limited if the workers have vested benefit rights. The solution would be to change benefits for future employees. Increasing premiums, co- payments, and deductibles are included in these options.
The California Foundation for Fiscal Responsibility has proposed increasing the minimum retirement age requirement for county employees from 55 to 62 and upping the standard for police and firefighters from 50 to 57.
The baby boom retirement era will present unprecedented changes to all retirement benefit programs. Some things broken need to be fixed. Open and public negotiations need to be held when discussing future county employee bargaining agreements. To answer Moorlach's earlier question, it's our money!
Jerry Slusiewicz is the principal of Pacific Financial Planners LLC in Newport Beach, California. He is also host of Money Talks which airs on Saturdays AM 740 & 830. Mr. Slusiewicz can be contacted at 800-449-9501 or on his website: www.yourmoneytalks.com.
