HomeMy WebLinkAboutMINUTES - 09212004 - C.76 TO: BOARD OF SUPERVISORS t"' on �'
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FROM: JOHN SWEETEN, County Administrator ". r
Costar
DATE: SEPTEMBER 15, 2004 County
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SUBJECT: RESPONSE TO GRAND JURY REPORT NO. 0404, ENTITLED "TAKE ACTION NOW TO
REDUCE COSTS OF RETIREE HEALTH INSURANCE"
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATION:
APPROVE response to Grand Jury Report No. 0404, entitled "Take Action Now to Reduce Costs of
Retiree Health Insurance", and DIRECT the Clerk of the Board to forward the response to the Superior Court
no later than September 22, 2004.
BACKGROUND:
The 2003/2004 Grand Jury filed the above-referenced report on May 20, 2004, which was reviewed by the
Board of Supervisors and subsequently referred to the County Administrator, who prepared the attached
response that clearly specifies:
A. Whether the finding or recommendation is accepted or will be implemented;
B. If a recommendation is accepted, a statement as to who will be responsible for implementation and a
definite target date;
C. A delineation of the constraints if a recommendation is accepted but cannot be implemented within a
six-month period; and-
D. The reason for not accepting or adopting a finding or recommendation.
CONTINUED ON ATTACHMENT: YES SIGNATURE:
-------------------------------------------------------------------------------------------------------- '- --- - - -- - -------------
---#ECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMtNOATION OF BOARD COMMITTEE
,,APPROVE OTHER
:
SIGNATURE S) `
( 0. _a .
ACTION OF BORN _ ( i 0 APPROVE AS RECOMMENDED OTHER,._,
APPROVED as ; andfR=RMto the Finance Comnittee for review and recommendations to the Board.
VOTE OF SUPERVISORS €HEREBY CERTIFY THAT THIS IS A TRUE
AND CORRECT COPY OF AN ACTION TAKEN
UNANIMOUS(ABSENT : .I i ) AND ENTERED ON THE MINUTES OF THE
BOARD OF SUPERVISORS ON THE DATE
AYES: NOES: SHOWN.
ABSENT: ABSTAIN:
ATTESTED: SEPTEMBER 21,2004
CONTACT: JULIE ENEA(925)335-1077 JOHN SWEETEN,CLERK OF THE BOARD OF
SUPERVISORS AND COUNTY ADMINISTRATOR
CC: BOARD OF SUPERVISORS MEMBERS
PRESIDING JUDGE OF THE GRAND JURY
GRAND JURY FOREMAN
COUNTY ADMINISTRATOR
HUMAN RESOURCES DIRECTOR
AUDITOR-CONTROLLER A•r
BY� °' .{ ,. ",' .....• DEPUTY
REQUEST TO SPEAK FORM
(THREE (3) MINUTE LIMIT)
Complete this form and place it in the box near the speakers' rostrum before addressing the Board.
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Address: '< "f . City: S - f, -:
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.s
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t �...:!.f.TMif ....
! wish to speak on Agenda Item# ' Dates, ' `"`
comments_, ill-be`,- eneral ❑ For Against
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Pease see reverse for instructions and important information
REQUEST TO SPEAK FORM ��
(THREE (3) MINUTE LIMIT) ee
Complete this form and place it in the box near the speakers' rostrum before addressing the Board.
Name: �� Phone:
Address: J -- City:
I am speaking for myself or organization:
CHECK ONE:
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Please see reverse for instructions and important information
BOARD OF SUPERVISORS RESPONSE
TO GRAND JURY REPORT NO, 0404:
TAKE ACTION NOW TO REDUCE COSTS OF RETIREE HEALTH INSURANCE
In October 2002 the Contra Costa County Board of Supervisors (BBS) approved more
expensive pension benefits for county employees. It appears that there has been little attention
paid to a related topic: The increasing costs of health insurance coverage for retired
employees.
FINDINGS
1. Contra Costa County(the County)continues to provide health insurance for County
employees, and dependents, after they retire. The County pays the major part of the
premium cost, contributing 75% to almost 100%, depending upon the health plan
selected and the retiree's age and family size.
Response: Partially disagree. The County provides retiree health
insurance only if the employee was enrolled in a health plan at the time
of retirement. Zn that case, health plan costs depend upon the plan
selected and family size, but not the retiree's age. The County's share
of the premium costs currently range from 59% to 100%.
2. The "health insurance" referred to herein includes dental insurance. A number of plans
are available.
Response: Agree.
3. All retirees pay some share of the premium cost, but several plans have a retiree
payment of only one penny per month.
Response: Agree.
4. The cost of the retiree health insurance is not paid out of the County pension system. It
is a separate cost paid from the County general fund, except for the cost for certain
retirees who worked in departments where enterprise funds or grants are used to pay the
cost. (Enterprise funds are the operating funds of a government operation that is
expected to be profitable or self-supporting).
Response: Partially disagree. The finding was true prior to fiscal year
2002103. In fiscal year 2002/03, the County began charging each
department for the healthcare costs of its retirees, regardless of fund.
Under this more precise accounting method, some of the cost burden
previously borne by the General Fund is now, more appropriately, being
charged against other funding sources.
5. Retiree health insurance cost has increased dramatically over the past four years. Those
costs, and the percentage increases from year-to-year, are as follows:
Take Action Now to Reduce Costs of Retiree Health Insurance September 15, 2004
Board of Supervisors Response to Grand Jury Report No. 0404 Page 2
Percent increase
Fiscal Year Cost per Year
over prior year
1999-00 $10,907,981 - -
2000-01 $12,329,907 13%
2001-02 $14,583,396 18%
2002-03 $18,797,678 29%
2003-04 $24,836,229 32%
(The cost for 2003-04 is the County's budget figure. Actual expenditures for the first six months of the fiscal year
indicate this budget prediction is substantially accurate.)
Response: Agree. In addition, it is worth noting that this cost trend is
not unique to Contra Costa County or to retiree health plans, bort to all
health plan costs nationwide.
6. As shown, the budgeted cost of the health benefits increased in 2003-04 by 32% over
the preceding year.
Response: Agree.
7. The County's cost for retiree health insurance is likely to increase rapidly in the future,
even if costs for medical services and drugs increase at a lower rate than in recent
years. The 2002 pension benefit increases encourage earlier retirements for all groups
of County employees. More county retirees will increase County costs because more
people are on the retirement rolls.
Response: Agree. However, to the extent that the County eliminates or
does not backfill positions vacated through retirement, the County
saves significantly more than the pension and pension benefit costs
associated with those positions.
8. Younger retirees will remain on the rolls for a longer time before they qualify for
Medicare. Medicare offsets a portion of the county premium cost for most of the retirees
after age 65.
Response: Agree.
9. Currently, the County's financial statements account for retiree health costs on a pay-as-
you-go basis. Each department is currently charged for the health care costs of its
retired employees. f=uture costs, beyond the current fiscal year, are not treated as an
unfunded liability. An unfunded liability can affect the County's credit rating.
Response: Agree.
Take Action Now to Reduce Costs of Retiree Health Insurance September 15, 2004
Board of Supervisors Response to Grand Jury Report No. 0404 Page 3
10. The Government Accounting Standards Board (GASB)recommends that, by 2006,
retiree health costs and other non-pension benefits be treated as unfunded liabilities in
lieu of pay-as-you-go treatment. The new treatment, which is expected to be adopted,
will result in a new liability on the County's balance sheet.
Response: Agree. GASB Statement 45 was adapted and will require the
County to implement the new reporting method effective in fiscal year
2007108. It cannot yet be determined what effect the new unfunded
liability will have on the County's credit rating. However, as the rating
agencies are cognizant of the current pay-as-you-go method for
accounting/reporting of retiree healthcare costs, and as the new GASB
rule will be applied to agencies nationwide, it is also possible that
consequence of the new rule will be only nominal.
11. The increased cost of retiree health insurance paid from the County's general fund
reduces the funds available for county services. In past years, shortfalls in the general
fund, from other causes required threatened reductions in law enforcement, library
hours, animal control services and other activities which directly affected citizens.
Response: Agree. Whereas, it is important to consider all costs when
developing the annual spending plan of the County, it is likewise
important to distinguish between planned General Fund obligations,
such as staff-related costs, and unplanned General Fund obligations,
such as new or unfunded State mandates or State seizure of local
revenues. The County can plan for those costs over which it has
discretion and can even plan to a great extent for economic changes,
but it is very difficult to anticipate policy changes of the State. The
Board of Supervisors continues to work with its legislative advocates to
protect local revenues and to secure stable funding streams for local
services.
RECOMMENDATIONS
The 2003-2004 Contra Costa County Grand Jury recommends that:
1. BCS promptly reduce the costs of the future County paid health insurance for retirees
who were not covered by an MOU (Memorandum of Understanding, a labor contract)
during their employment by:
increasing the share paid by the retirees.
reducing health plan benefits.
capping health costs to the County.
adopting some combination of these.
Take Action Now to Reduce Costs of Retiree Health insurance September 15, 2004
Board of Supervisors Response to Grand Jury Report No. 0404 Page 4
Response: Will not be implemented because it is not reasonable.
Health benefits for retirees are a term and condition of employment as
benefits fixed during employment to be paid out after retirement. The
County has had a longstanding practice of paying these benefits for its
employees and retirees. To unilaterally take these benefits away from
current or retired employees would not be in the best Interest of the
County. This is a complex issue. Any change to retiree health benefits
is something that the Board must consider after appropriate
investigation and deliberation, on a case-by-case basis in the context of
all related factors, including the legal, administrative, budgetary, and
collective bargaining ramifications of the action.
2. BOS promptly reduce the future costs of County paid retirees health insurance by
changing the terms and conditions of employment of current employees who are not
covered by an MOU to reflect the cost saving changes adopted for the former employees
who are already retired.
Response; Please see response to Recommendation No. 1.
3. BOS require County negotiators to obtain similar reductions in the contract (MOU)
commitments for retiree health insurance applicable to future retirees who are now union
members. If these reductions cannot be negotiated at this time, they should be a
primary goal of future labor contract negotiations occurring before expiration of existing
MOUs.
Response: Please see response to Recommendation No. 1.
4. BOS determine the best means of reducing costs of County paid health insurance for
those current retirees who were union members while employed.
Response: Please see response to Recommendation No. 1.
5. BOS adopt a schedule for compliance with GASB recommendations regarding the
method of accounting for the costs of post-retirement health and other non-pension
benefits.
Response: Will be implemented by the Auditor-Controller by November
1, 2004.
6. BOS obtain an evaluation of the impact on the County credit rating of compliance with
the GASB recommendations on retiree health costs.
Response: Will not be implemented because it is not feasible. GASB
Rule 45 is a significant departure from the current pay-as-you-go
method of reporting retiree health costs. The new rule will be
implemented nationwide and will establish a new category of
indebtedness on the financial statements. In fiscal year 2006107, the
Take Action Now to Reduce Costs of Retiree Health Insurance September 15, 2004
Board of Supervisors Response to Grand Jury Report No. 0404 Page 5
County will hire an actuary to analyze current and future costs of health
care for County retirees. Even with that information, however, it will be
nearly impossible to predict with any certainty how the new liability
might affect the credit ratings of agencies nationwide upon
implementation.
"Ann Gardner' To: KSinc@cob.cccounty.us
<AGARD(,dtsc.co.contra cc:
-costa.ca.us> Subject: Re:Grand Jury Reports
09/2212004 01:03 PM
T did receive them (Grand Jury Reports #0404 and 0409. Thanks!
>>> <KSinc@cob.cccounty.us> 9/22/2004 11:54:39 AM >>>
Hello Ann,
Thank you for your patience this morning. Will you reply to this e-mail as
verification that you received Grand Jury Reports # 0404 & # 0409 from me
this morning for the Grand Jury and Superior Court.
Thank you very much.
Kathy Sinclair