SANTA FE — Come July 1, more than 9,000 former firefighters, police officers and other government retirees who retired early, as well as their spouses, will get hit with sticker shock in the form of higher health care premiums.

How much higher?

 

 

Roughly $1,300 a year, or $112 a month, for the retiree, state officials and lawmakers said Tuesday during a legislative hearing at the State Capitol. For the spouse the jump in premium will be even higher — $139 a month extra, or more than $1,600 a year.

 
With the premium increases the state is addressing a growing national trend for governments at all levels, state lawmakers said — that of people who retire from government in their 40s or 50s and cost more than their predecessors who usually retired later and often didn’t live long enough to receive benefits for several decades.
 
Nearly 9,000 retirees in the state’s system of public-sector retirees quit work between the ages of 38 and 54, according to the authority.
The higher premiums are meant to dissuade people from quitting work at such an early age, said Sen. John Arthur Smith, D-Deming, chairman of the powerful Senate Finance Committee.
 
"It may be unhealthy (financially) to retire early and they are going to have to realize that," Smith said Tuesday of the higher premiums.
 
 
Who is affected?
 
Those feeling the brunt of the big premium increases are 65 and under and are enrolled in the gold-plated plan offered by the New Mexico Retiree Health Care Authority, the state’s main provider of health insurance to public sector.
 
Another 5,000 retirees, spouses and children enrolled in the authority’s silver-plated plan will get hit with smaller premium increases, according to documents.
 
The affected retirees will get the chance to switch to a less expensive plan once the new premiums go into effect, but authority officials said Tuesday they didn’t know if many retirees would choose the cheaper plan.
 
The authority, an obscure state agency, covers 42,000 retirees, their spouses and their children. The retirees come from one of dozens of public-sector employers, including the state, 19 counties, 22 cities, including Albuquerque, or one of and several educational institutions for which the authority provides coverage.
 
Until recently, the authority was thought to be financially stable. But in the last year a new acturial report has diagnosed large financial difficulties for the authority that has caused increasing alarm among state officials and lawmakers. Without drastic changes, the authority, which is vastly underfunded, could go insolvent by 2014, actuaries predict.
 
So woebegone are the authority’s revenues that in recent years it has dipped into its investment portfolio to pay for current retirees’ health care costs, a practice that is frowned upon, government officials said. In an ideal world, the authority would have enough revenue without dipping into investments to pay operational expenses, as well as current retirees’ costs and set aside money for future retiree costs. All told, the authority has a $4 billion gap between what it owes in current and future retirees’ health care costs and what it has on hand financially.
"This is huge," Sen. Cisco McSorley, D-Albuquerque, said Tuesday.
 
 
A National Issue
 
New Mexico is not alone in its struggle to restrain retiree health care costs.
It is a problem that many states, as well as counties and cities, across the country are confronting.
And some are in much greater straits than New Mexico.
Illinois’ gap between what it owes and what it can afford — called an unfunded liability — may top $24 billion, while Maryland’s gap may hover around $16 billion, according to the California Legislative Analyst’s Office, a nonpartisan agency that collects information on public-sector retiree health care costs nationally.
 
Meanwhile, Contra Costa County in California faces a $2.6 billion debt for retiree health benefits, leading the county’s Board of Supervisors earlier this month to endorse a pullback in benefits for about 1,100 nonunion employees and retirees, according to the Contra Costa Times newspaper.
In New Mexico, the retiree health care authority is attempting to fix the problem by endorsing several potential remedies. One includes raising contribution levels for current public-sector employees and their employers who participate in the authority.
 
Funding for the authority comes from contributions from active public sector employees and their employers — for example, the state, counties or cities — as well as from retirees’ premiums.
 
"It can be fixed, but it will be a painful process," Rep. Luciano "Lucky" Varela, chairman of the Legislative Finance Committee, said of the authority’s troubles. For that reason, Luciano hoped that the authority would remember that not all retirees can afford huge premium increases. "What about a janitor,"Luciano said. Because of that, Luciano said the authority should think about having lower to no increase for retirees who don’t have much income coming in and higher increases for those who can afford it.