City employees have been enjoying having the government pick up the tab, but it is an expensive one.
In Tucson, Arizona, as is the case in many cities across the country, when workers retire before the point that they are eligible for Medicare – at the age of 65 years – they are able to avoid the cost faced by most private sector employees, in which they would have to bear the cost of their own health insurance plans during the span between retirement and Medicare eligibility.
Last year, the city paid out $15.4 million in order to ensure that those retired workers remain covered.
In 2013, the city paid that amount in both direct and indirect insurance costs for the 1,350 retirees and widows of retirees where there was retirement before the age of 65 and, therefore, Medicare eligibility had not yet kicked in. Of the total $15.4 million, there was about $9.6 million that was directed toward subsidizing the health plans of retirees. What was left was what the city of Tucson had calculated that it had paid out in increased premiums in order to carry the extra older members of its own plan.
Current city employees pay higher costs for their insurance in order to cover the health plans of retiree members.
This process of placing both the active employees and those who are retired into the same pool helps to make sure that the cost is kept low for retirees, while those who are still working will be paying more. According to Chief Financial Officer Kelly Gottschalk, “The active employees are subsidizing the retirees.”
The city has yet to make a calculation of how much less money the current workers would be paying if the retired employees were placed on a separate plan or if they were dropped altogether.
This type of attractive health insurance and retirement benefits offer has traditionally been provided by governments to help to compensate for the fact that they typically pay lower wages. This helps to make sure that they will remain as attractive as the private sector to employable talent, said Arizona State University health economist from the W.P. Carey School of Business, Marjorie Baldwin.