NEWBERRY — To manage the future cost of the benefits, Newberry County Council is reviewing post-employment health insurance benefits.
“In June of 2004, the Government Accounting Standards Board issued Statement No. 45, requiring disclosure of accrued liabilities for post-employment benefits other than pensions. GASB 45 is thus sometimes referred to as OPEB, denoting other post-employment benefits,” said County Administrator Wayne Adams. “Beginning in December of 2006, GASB phased in reporting of these liabilities based on the sizes of local government, as determined by annual revenue receipts. According to this schedule, Newberry County’s reporting requirement began in December of 2007. The only OPEB benefit offered by Newberry County is a post-employment health insurance subsidy.”
GASB 45 is not a requirement that local governments reduce the cost of post-employment health insurance benefits, according to Adams. However, part of its purpose is to call attention of local governments to the future cash flows required of taxpayers to fund these types of benefits.
“Typical pay-as-you-go strategies allow for the size of such benefits to grow steadily without calling immediate attention to how big the problems of funding them can become. In the past, across the United States, attention to these growing liabilities has often come after it was too late to contain costs at reasonable levels,” Adams said. “Funding post-employment health insurance benefits adequately is particularly problematic in states where there is a strong union presence. In those states, labor contracts often dictate the funding of current and future benefits. South Carolina on the other hand, is a right-to-work state, which translates into flexibility for local governments in adjusting benefits to levels that are more affordable to taxpayers.”
In South Carolina, Adams continued, local governments typically set forth retiree health insurance benefits in their employee handbooks, which Newberry County does.
The Newberry County employee handbook states, “Newberry County also provides health insurance for retired employees. However, the terms of such coverage are not guaranteed and are subject to change.”
“Why would we include such language? Because we want to preserve the right to scale benefits to our ability to pay for them,” Adams said.
Newberry County pays for services via the mill value, in 2006-07 tax year the mill value was estimated to $100,433. For the coming year, Adams said they expect the mill value to be somewhere around $129,300. This means the mill value has grown 28.7% over a 12 year period.
“So let’s fast forward to the year 2030, 12 years from now. If our mill value grows 28.7% during that period as well, it will be worth $166,409. However, the cost of the current post-employment health insurance plan will more than quadruple over the same period of time, going from $103,650 to $482,917,” Adams said. “The number of mills needed to pay for it will go from 0.8 mills to 2.9 mills. How does that impact a $150,000 owner-occupied home for tax purposes? Today, it costs $2.80. In 2030, when the same home is worth $190,000 (assessment of $7,600), it will cost $22.04. Twelve years further on, the mill value, using the same assumption, will be $214,168 and today’s $150,000 home will be worth $245,000 (assessment of $9,800).”
The County will need 5.5 mills, or $53.90 from the homeowner to pay for the current structure of the post-employment health care benefits, due to the fact that the cost of the benefit will then be $1,170,348 per year. The County’s current plan says that if you retire with 30 years of service, the county pays 95% of your post-employment health insurance cost. The subsidy continues after you qualify for Medicare benefits.
“With a cost of $475 for employee coverage, that leaves the employee paying less than $24 a month for almost total coverage, for the rest of their lives,” Adams said. “The City of Newberry, by contrast, pays for no post-retirement health insurance benefits for its employees, and that is the same plan as most of the people who will be paying tax dollars to fund post-employment health insurance benefits for county employees.”
Council reviewed four options to manage the future cost of benefits. Adams noted that all of the options are just that, options, none of them have to be used, and another option could be created to manage future costs.
Option One states that before July 1, 2021, persons not yet receiving pensions through the South Carolina Retirement System may continue tolling service years up to 28 years. Employees cease to toll benefits once they elect to receive their pension. Anyone retiring on or after July 1, 2021 will receive benefits corresponding to 20 years of service, maximum (65% subsidy). This option would have a cost difference of 13.1%.
Option Two states that for anyone retiring on or after July 1, 2021, benefits will cease once the retiree reaches Medicare coverage eligibility. This option would have a cost difference of 70.1%.
Option Three simply combines Options One and Two, and has a cost difference of 71.4%.
Option Four states that for anyone retiring on or after July 1, 2018, benefits will cease once the retiree reaches Medicare coverage eligibility. The premium subsidy between retirement and Medicare eligibility will be capped at 65% premium subsidy, regardless of years of service. Persons hired on or after July 1, 2018 will not receive any benefits under the policy. This option would have a cost difference of 78.04%.
“I’m offering that (Option Four) as an option, but I’m not wild about it. I think it is somewhat cowardly to be honest with you. We are fond in this country of saying we are going to take things from people who are not yet born. We run up deficits and say it is too expensive to tax people who are here now, we will use debt and tax future generations, we will tax people not even born. Here saying on July 1, 2018 we shut the door, and those who come after us are less worthy of the benefit,” Adams said.
Chief Deputy Todd Johnson spoke to how the change in the benefit could impact the county down the line.
“This is pretty much the same benefit state employees receive, and is consistent with the way they handle business. One of my first concerns about doing anything with this would be a push of our employees into the state market (for those agencies that do offer it), especially those nearing retirement, to get their last years in with the state, instead of with us, so they can get long term insurance,” he said.
Johnson broke down the average starting salary for Newberry County Sheriff’s Office employees, a dispatcher is $11.81, jailer $12.56 and a deputy is $14.76.
“They’ve done with a smaller salary with hopes of better benefits. I would ask you to consider that. It is going to become more and more difficult to recruit police officers and public safety officials in a society that has such a negative image of them, and pay them less than the market is paying standard workers and expose them to more criticism, more rebuke, more disdain and more hours,” Johnson said. “There will come a day when that won’t work.”
Johnson added that they are in a hiring market with nearby counties that pay more than Newberry County does. He said those counties are paying six to eight thousand dollars more than Newberry is, making it difficult to compete.
“I don’t know how we can compete with them, if we continue to cut benefits,” he said.
Chairman Henry Livingston said he could see it from both sides.
“If you look at the numbers that maybe increased and what it may cost millage wise on your home, when you retire, you may end up getting caught up on that end of it, paying additional millage rates because of what it is costing to keep the insurance package alive and available,” he said. “The other side of it, these were promises that were made when they were hired, and I’d like to fulfill the responsibility to the people that they were under the impression they were getting. As a new hire coming on, if told up front that isn’t something you are going to be granted, I have less heartache over that than telling someone they are going to get something and take it away.”
Reach Andrew Wigger at 803-276-0625 ext. 1867 or on Twitter @ TheNBOnews.