Orange County Retiree Medical Plan Faces $1.3 Billion in Debt, Will Exhaust Reserves in 2006
Orange County's debt for its retiree medical benefits program has more than doubled over the past three years to $1.3 billion, and the county likely will exhaust financial reserves in 2006, according to a study by Mercer Human Resources Consulting, the Orange County Register reports. According to the report, it will cost $28 million to fully fund the retiree medical benefit program in 2004 -- $18 million more than originally budgeted by the county.
Bob Griffith, president of the Retired Employees Association of Orange County, said the most substantial problem is what the report calls a "hidden subsidy" in the county health plan that maintains lower health insurance rates for the 5,205 retirees in the plan by keeping them in the same pool as 18,098 active employees enrolled in the plan.
If the county discontinues this practice, retiree health insurance premiums for 2004 would increase by 43% because of higher health care costs associated with older beneficiaries, according to the Mercer study.
Griffith said that even with the subsidy, "[w]hat the county pays does not begin to cover the costs of medical care," adding, "Our out-of-pocket costs for health care have gone up substantially over the past five years."
Orange County Treasurer-Tax Collector John Moorlach said the county will have trouble absorbing the extra debt because it already holds $800 million in debt from a 1994 bankruptcy filing and a pension debt of about $1 billion. He said that with the retiree medical benefits program's debt, "You're talking $1,000 of liability per resident of the county."
According to David Hitchcock, who analyzes Orange County's financial condition for the state and local government group of Standard & Poor's Rating Services, reduced contributions to the county's medical benefits program could be forthcoming. He said, "I think you're going to see more of that as people see the costs of these programs," adding that higher costs could end medical benefits for new hires or force officials to "take these benefits away from existing employees." Hitchcock said, "Medical costs are a growing thorn in the side of local government."
Tom Beckett, a public finance manager with Orange County, said that county officials will be considering how to address long-term financing for the retiree medical benefit program, adding that "it's going to take time to develop" a solution.
County Supervisor Chris Norby said he plans to ask the board to create a reserve account to fund retirees' medical benefits, adding, "What's going on is a natural human inclination to put off debts and expenses into the future. It's not a wise course of action" (Santana, Orange County Register, 9/8).