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Contra
Contra
TO: BOARD OF SUPERVISORS
FROM: JOHN CULLEN, o' ,,,, - - iz Costa
County Administrator
•'
County
COUT1
DATE:E: April24, 2007
SUBJECT: OPPOSE POSITION on AB 552 (Hernandez)— County Retirees:
health insurance
SPECIFIC REQUEST(S)OR RECOMMENDATION(S)&BACKGROUND AND JUSTIFICATION
RECOMMENDATION:
OPPOSE Assembly Bill 552 (Hernandez), legislation that would mandate that 1937 Act participating
employers must offer health insurance coverage to retirees with 10 or more years of service and at no
more than 102% of the cost paid by active employees, as recommended by the Treasurer-Tax
Collector, Auditor-Controller, and County Budget Officer.
FISCAL IMPACT:
If AB 552 passes, there would be an impact on the County's already substantial Other Post
Employment Benefits (OPEB) liability, an impact that has not yet been estimated.
BACKGROUND:
The County's 2007 State Legislative Platform includes the following policy position:
SUPPORT full state participation in funding County's retiree and retiree health care unfunded liability.
Counties perform most of their services on behalf of the state and federal governments. Funding of
retiree costs should be the responsibility of the state, to the same extent that the state is responsible
for operational costs.
AB 552 would create an additional unfunded mandate on 1937 Act counties to offer health insurance
to its retirees who participated in an employer group health care plan for at least 10 years at a rate
that does not exceed 102 percent of the active employee rate for that health care plan coverage.
CONTINUED ON ATTACHMENT: x YES SIGNATURE:
RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COM EE
APPROVE OTHER
SIGNATURE (S): W<
ACTION OF BOARD ON APPROVED AS RECOMMENDED �TTiER
VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE AND CORRECT
COPY OF AN ACTION TAKEN AND ENTERED ON MINUTES OF
1/
UNANIMOUS(ABSENT THE BOARD OF SUPERVISORS ON THE DATE SHOWN.
J�- )
AYES: NOES:
ABSENT: ABSTAIN:
Contact:
L. Delaney 5-1097
Cc: L.
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S. Hoffman,CAO's Office JOHN C LLE ,CLERK OF THE BOARD OFSUPERVISORS
C. Christian,via CAD's Office
L. Driscoll,CAO's Office
B. Pollacek,Treasurer-Tax Collector BY: DEPUTY
S.Ybarra,Auditor-Controller
AB 552—Retiree Health Insurance Costs., p.2
April 24, 2007
Existing law permits, but does not require, counties that participate in 1937 Act County Retirement
Systems to provide retired employees with health insurance benefits. Existing law also generally
declares that provision of such retiree health benefits shall not constitute a vested benefit to the
retirees. Existing law does not mandate minimum benefit standards when counties in 1937 Act
County Retirement Systems provide retiree benefits.
Costs of health insurance are directly linked to age; mandating inclusion of retirees in employer health
plans at pooled rates transfers cost both to active employees and to employers for the higher rates
related to the older retiree population. In addition, since no obligation is presented by AB 552 for
retiree participation in the health insurance pool, AB 552 further guarantees adverse selection and
higher costs by making such pools inviting to persons with serious health problems who may have no
other available insurance options, and freeing healthy retirees and those with dual coverage to not
participate in the pooled insurance plan until they develop such problems.
While the findings that open the bill discuss "many" local governmental entities dropping coverage for
retirees or carving retirees out of the active population for purposes of setting the retiree premium,
this is not a rampant problem with 1937 Act employers. (Orange County recently moved to price
retirees separately from active employees, but it is the only case to date). Accordingly, it is unclear
why 1937 Act employers are being singled out for this mandate, and/or why it is not being extended
to all public employers (something similar already applies to public entities that participate in the
C:alPERS PEMHCA plan, but there are many other public entities that do not participate in PEMHCA).
It may be a confusion of the issue of access to coverage with the recent stories in Sacramento and
San Diego concerning reducing/eliminating the subsidy. Or AB 552 may be a preemptive move to
cut-off something that certain stakeholders and legislative leadership see as the next step.
The Governor's OPEB Commission is reviewing the subject of retiree health coverage and will be
developing recommendations. Nevertheless, a bill that would vest the right to cost-controlled health
care for retirees is not appropriate given the attention being given to the GASB reporting obligations
and OPEB liability.
CALIFORNIA LEGISLATURE-2007—o8 REGULAR SESSION
ASSEMBLY BILL No. 552
Introduced by Assembly Member Hernandez
February 21, 2007
An act to amend Section 53205.2 of, and to add Section 31693.5 to,
the Government Code, relating to county employees.
LEGISLATIVE COUNSEL'S DIGEST
AB 552, as introduced, Hernandez. County employees: health
insurance.
(1) The County Employees Retirement Law of 1937 permits a
member of a retirement system to retire and receive a retirement
allowance based upon years of service if he or she meets specified
requirements, including, but not limited to, completing 10 years of
service and attaining a minimum retirement age.
This bill would provide that if a member of a retirement system subject
to that law retires and receives a retirement benefit based upon years
of service, and that member participates in an employer group health
plan for at least 10 years, the member may elect health care plan
coverage at a rate that does not exceed 102% of the active employee
rate for that health care plan coverage. The bill would permit a county
board of supervisors,by resolution adopted by majority vote, to provide
that health care plan coverage to a member of a county retirement system
who participates in an employer group health plan for less than .10 years,
as specified. The bill would also provide that these provisions do not
preclude a member who retires based upon years of service from
participating in, or preclude an employer from providing, alternate or
supplemental Medicare coverage, as specified.
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AB 552 —2—
(2)
2—(2) Existing law requires a specified county, city, school district,
district,municipal corporation,political subdivision,public corporation,
or other public agency of this state to give preference to health benefit
plans that do not terminate upon retirement of an employee, and that
provide the same benefits for retired personnel as for active personnel
at no increase in costs to the retired person. Under existing law,if retired
personnel receive retirement benefits under the Public Employees'
Retirement System,the health benefit plans under the Public Employees'
Medical and Hospital Care Act shall satisfy the requirements of these
provisions.
This bill would provide that a health benefit plan shall satisfy the
requirements of these provisions if that health benefit plan permits
retired personnel who receive retirement benefits under a retirement
system subject to the County Employees Retirement Law of 1937, to
elect health care plan coverage at a rate that does not exceed 102% of
the active employee rate for that health care plan coverage,as specified.
(3) This bill would make related findings and declarations by the
Legislature.
Vote: majority. Appropriation: no. Fiscal committee: no.
State-mandated local program: no.
The people of the State of'California clo enact as follows:
1 SECTION 1. The Legislature finds and declares all of the
2 following:
3 (a) Many local public agencies have historically provided health
4 insurance coverage for retired employees. Recently, local public
5 agencies have been reducing or eliminating that health insurance
6 coverage.
7 (b) Local public agencies have a long history of including retired
8 employees who are not eligible for Medicare in the active employee
9 risk coverage pool used by health insurance providers to establish
10 premiums for health care coverage. These local public agencies
1 1 are now removing retired employees from the active employee
12 risk coverage pool,resulting in dramatic increases in the premiums
13 for retired employees, and savings to local public agencies that
14 comes at the expense of retirees and potentially active employees.
15 (c) Increases in health insurance premiums limits health care
16 access for retired employees of local public agencies, and these
17 retired employees may be forced to choose insurance plans
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1 requiring higher out-of-pocket costs and reduced health care
2 benefits and coverage,or forced to drop health insurance coverage
3 entirely.
4 (d) The lack of health care coverage for retired employees
5 contributes to increased health care costs being shifted to taxpayers
6 by imposing additional costs on federal, state, and local public
7 agencies.
8 (e) Employees who retire from local public agency employment
9 have fully vested in the right to participate in a commingled health
10 care insurance risk coverage pool with active employees by paying
11 increased medical insurance premiums during their active
12 employment, which allowed other retired employees to purchase
13 health care coverage at the same rates as active employees.
14 (f) The United States Congress passed the Consolidated
15 Omnibus Budget Reconciliation Act (COBRA) health benefit
16 provisions in 1986 to provide continued group health care coverage
17 that otherwise might be terminated.
18 (g) It is the intent of the Legislature to enact provisions similar
19 to COBRA to require continued health care coverage for retired
20 employees of local public agencies, until these retired employees
21 are eligible for comparable or better Medicare coverage, and to
22 cover basic health care benefits, including, but not limited to, all
23 of the following:
24 (1) Doctor visits.
25 (2) Hospitalization.
26 (3) Prescription drugs.
27 (4) Preventive care, including,but not limited to, immunization,
28 management of asthma, and screening for diseases that include
29 diabetes, heart disease, high blood pressure, and other chronic
30 conditions.
31 (h) It is the further intent of the Legislature to ensure that health
32 care benefits are available to and affordable for retired employees
33 of local public agencies.
34 SEC. 2. Section 31693.5 is added to the Government Code, to
35 read:
36 31693.5. (a) A member or a member who retires pursuant to
37 Section 31663.25 or 31672, who has participated in an employer
38 group health care plan for at least 10 years, or for a period less
39 than 10 years as established by the board of supervisors, by
40 resolution adopted by majority vote, shall have the option to elect
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AB 552 —4-
1
4-1 health care plan coverage at a rate that does not exceed 102 percent
2 of the active employee rate for that health care plan coverage.
3 (b) Nothing in this section shall require an employer to fund or
4 provide the rate for health care plan coverage described in
5 subdivision (a) for an active or retired employee who participated
6 in an employer group health care plan for less than 10 years.
7 (c) Unless requested by the member, nothing in this section
8 shall preclude a member who retires pursuant to Section 31663.25
9 or 31672 from participating in, or preclude an employer from
10 providing, alternate or supplemental Medicare coverage if that
11 coverage is comparable to or better than the health care coverage
12 described in subdivision (a), and is at the same or lower cost than
13 the health care coverage described in subdivision (a).
14 SEC. 3. Section 53205.2 of the Government Code is amended
15 to read:
16 53205.2. 1n (a) E;ecept as described in subdivisions (b) and
17 (c), in granting the approval specified in Sections 53202 and
18 53202.1, the local agency or governing board shall give preference
19 to sttek health benefit plans as do not terminate upon retirement
20 of the employees affected, and which provide the same benefits
21 for retired personnel as for active personnel at no increase in costs
22 to the retired person,provided that if the local agency or governing
23 board makes a contribution of at least five dollars ($5)per month
24 toward the cost of providing a health benefits plan for the employee
25 or the employee and the dependent members of his or her family.
26 4ft
27 (b) In the case of retired personnel who receive retirement
28 benefits under the State Ernployeesl Public Employees'Retirement
29 System, Part 3 (c•arrrnrenc•ing with Section 20000) of Division 5 of
30 Title 2, the health benefits coverage provided for annuitants by a
31 health benefits plan under the Nleyefs Geddes State Employees'
32 Public Employees' Medical and Hospital Care Act, Part 5
33 (cornrnencing with Section 22750) of'Division 5 of'Title 2, shall
34 satisfy the requirements of this section.
35 (c) In the case of• retired personnel who receive retirement
36 benefits under the County Employees Retirement Law of 1937,
37 Chapter 3 (commencing with Section 31450) of Part 3 of'Division
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1 4 of Title 3, health insurance coverage provided pursuant to
2 Section 31693.5 shall satisfy the requirements of'this section.
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