Gov. John Carney acts on the final bills in a package to update state retiree healthcare benefits following a multi-year reform effort.
The Carney administration prompted a lawsuit from state pensioners in 2022 following its decision to switch current retirees to a less-optimal Medicare Advantage plan, also known as Medicare part C, which did not ultimately go into effect.
The General Assembly then created the Retiree Healthcare Benefits Advisory Subcommittee, which delivered a slew of recommendations on how to preserve promised retiree healthcare benefits while helping to control the state’s share of rising healthcare costs.
State Rep. Paul Baumbach (D-Newark) championed the bills carrying out these recommendations, and although they passed with overwhelming majorities in the legislature, Carney expressed mixed actions on the bills, largely citing fiscal concerns.
Carney opted to veto legislation restructuring the body in charge of state health insurance plan options — which was overturned — and let another bill repealing the option of a Medicare Advantage plan for current employees become law without his signature.
On Monday, Carney signed three bills that increase the state’s pre-funding for retiree health benefits, alter the state’s subsidization vesting schedule of retiree health care premiums and require a pensioner coordination of benefits policy.
House Bill 330 requires the General Assembly to set aside 0.50% of annual payroll in the Fiscal Year 2026 budget for the Other Post Employment Benefits (OPEB) Trust Fund — the long-term vehicle for pre-funding retiree health care — and to increase this percentage incrementally by 0.25% of payroll every year until all annual contributions to the fund reach the actuarially-determined Annual Required Contribution.
The estimated liability for retiree health care benefits as of February was $8.9 billion — $8.4 billion was unfunded at the time.
In April 2023, the net unfunded liability was expected to grow to $20.7 billion by 2042 if no changes in plan design, eligibility or funding was made.
Last year, Gov. John Carney signed Senate Bill 175, requiring that every year, at least 1% of the grand total of the General Fund operating budget appropriations for the prior fiscal year is appropriated to the OPEB Fund to begin addressing the unfunded liability.
Baumbach explains this legislation will add to those efforts: "It's an obligation that's earned up front, but it's paid in the back, and we weren't setting money aside for those back payments. The problem is that when you take all of our employees over the dawn of time, you've got a multi-billion dollar liability, and it's kind of hard for the state to come up with a lot of billions of dollars over night. So it's something that developed over decades, and it's something that needs decades to catch up on."
While Carney signed that piece of legislation, he is not putting his full support behind House Bill 377, which requires the state to continue offering eligible pensioners employed before Jan. 1, 2025, a plan comparable to the current Special Medicfill Medicare Supplement plan.
"I am encouraged that this legislative package accelerates my administration’s commitment to funding the OPEB Trust Fund and implementing eligibility reforms. House Bill 377, on the other hand, increases funding needs by placing limits on how future administrations can provide health care and implement plan design changes for retirees if better health care options and approaches emerge," Carney said in a statement. "While I will allow House Bill 377 to go into law without my signature, I strongly encourage members of the General Assembly to continue their work to enact plan design and eligibility changes that will ensure the long-term sustainability of retiree health care and secure the progress we’ve made toward improving the State’s finances.”
Baumbach disagrees with the governor’s apprehension.
"[House Bill] 377 says the state can change what that base is for future hires when they retire and become Medicare age, but you've got to let them know. If they want to save money, then the state can indeed provide a lesser amount, but don't do it to somebody who's already retired or already put 20 years in," Baumbach said. "So [House Bill] 377 is just— treat our employees with respect and be honest with them, and that, apparently, is something the governor doesn't support."
Baumbach announced his retirement this legislative session. He says the work is never over, but the new laws should provide more transparency to the retiree healthcare benefits process moving forward.
"The retirees and the current employees are not going to let a future governor and a future legislature do what was done to them in the past. Eyes are watching, so they should be watching, and they should make sure that they deal with our employees and our retirees with respect, unlike was done by the Carney administration," he said.
"I think we're in a far better place — I feel really good about that. We got a lot of bills done that are really meaningful, that really treat our employees and retirees with the respect that they deserve because we need them to run our government, and we've been depending on them, and we need to hold up our side of the bargain."
