Wednesday, February 18, 2009

NFA presentation on PEBP to Joint Subcommittee on General Government

This morning a strong contingent represented the NFA at the hearing of the Joint Subcommittee on General Government, which was considering the budget for PEBP. Below are remarks presented by Jim Richardson in Carson City, which were then supplemented by statements given via teleconference from Las Vegas by state president Alok Pandey (CSN), UNLV Faculty Senate chair Nasser Daneshvary, Gregory Brown (UNLV), Shari Lyman (CSN) and Candace Kant (CSN-retired).

Testimony of Jim Richardson, NFA, Concerning PEBP Budget, Feb. 18, 2009

1. PEBP is an “average” health plan for public employees in terms of benefits offered and costs, not a “premium” one as is asserted by some commentators. This is clearly demonstrated in the 2007 Plan comparison, which compares the plan with that of a number of western states, and also with some larger local government entities in Nevada.

2. Changes recommended in Executive Budget would make the plan considerably below average for public employee groups in this state and in western states. Proposed changes include nearly tripling the deductible for most participants, at least doubling co-pays, dropping benefits, cutting subsidies for current retirees in half, eliminating subsidies for those retiring after June 30 and for all Medicare eligible retirees, and dramatically increasing costs for current employees.

3. The Executive Budget does not contain any COLA or other raises for state employees this coming biennium, and even proposes a 6% salary cut. Also, according to a study comparing salaries of state employees and local government employees submitted by the Administration to a hearing of Senate Taxation last week, “Local government employers in Nevada, as a whole, pay an average of 37.94% more in salary compared to what the State of Nevada employers pay.” This study included 68 job classifications in Clark County and 45 in Washoe County. Cutting the PEBP budget so drastically would exacerbate the differential between state and local compensation levels, making it harder to hire and retain good state employees. The LV Chamber study also admits that NV has the lowest number of state employees per capita of any state.

4. The GASB liability associated with PEBP is a red herring issue. The cumulative liability associated with PEBP for current workers in reported to be $4 billion ($3.6 using plan changes proposed by Executive Budget) without any pre-funding. Compared to other on-going liabilities of the State of Nevada, this is miniscule. Using current year approved budgets for Health and Human Services (HHS), DSA (K-12), NSHE, and Corrections, projecting no case load growth over 30 years, and using a 3% annual inflation factor, the projected costs are: HHS: $118 billion; DSA $80 billion; NSHE: $38.4 billion; Corrections: $14 billion, for a total of $250 billion.

5. There is a structure in place to pre-fund GASB liability for PEBP, which will lower the liability considerably. In the last session Governor Gibbons proposed taking one per cent of a salary increase proposed by Governor Guinn for this biennium and using the money to establish a trust fund. That amount was to be over $50 million. PERS is now managing about $25 million that was placed in the fund. (The rest of the money was used to help deal with the budget crisis.) However, the fund still exists, and can be funded when funds become available. Also, AB 196 of the last session, sponsored by Assembly members Marvel, Arberry, Mabey, and Settlemeyer, passed and was signed into law by Governor Gibbons. This bill allows any revenues over the statutory spending cap to be used for “reducing any unfunded liability of the State Retirees Health and Welfare Benefits Fund …”

6. The proposed changes in the PEBP budget are focused on current employees and retirees, not future ones, as is the case with proposed changes in PERS. This backward looking approach should be rejected, as there are strong moral obligations as well as vested interests involved. If PEBP is to be modified significantly, it should not be done with those currently participating in PEBP, as they have made life changing decisions based on understandings given to them when hired and when they retired. This is the case especially with those who have retired already, including those who retired because of SB 544 of last session, which led to thousands of local government employees retiring, many of them early, just to retain the statutorily required subsidy to help with their health care costs.

7. The Executive Budget proposed to withhold all subsidies from Medicare eligible retirees starting in just four months. This is a dramatic change which will leave many retirees with much higher costs, and less coverage. For Medicare eligible retirees to participate in PEBP means that they gain coverage not furnished by Medicare, including dental and vision insurance, as well as $10,000 in life insurance (which in many cases is all the life insurance retirees have). Also Medicare eligible retirees currently participate in PEBP’s pharmacy program, which is better than that offered by Part D of Medicare. For instance, PEPB does not have the infamous “donut hole” in pharmacy coverage that Medicare Part D does, which means that retirees on Medicare participants can be out considerable sums to cover their pharmacy needs.

8. NSHE institutions and their faculties are would be hit very hard by the Executive Budget recommendations because we have to hire in a national hiring market. Oddly enough, this was recognized by the chair of the Sage Commission in his press release that accompanied the last set of recommendations given to the Governor. He said: “No one that testified before the Commission was able to offer a convincing reason why, save for our police, fire-fighters, and university faculty, that state employees should have better and more expensive benefits than their private sector brethren.” As noted above, the assumptions about the PEBP plan that underlie this statement are very questionable. But nonetheless, apparently we made the case that hiring and retention of faculty will be dramatically impacted by the recommendations made by SAGE and even exceeded in the Executive Budget proposals.

9. The Executive Budget recommendations would have several quite negative consequences. There would be a massive number of retirees by June 30 of this year which would disrupt the functioning of many state agencies and NSHE. Also, it is impractical and inhumane to force such decisions on a few months notice. And, if people do not retire by June 30, 2009, then the provisions to cut all subsidies would deter people from retiring at a normal time. Why retire if it would mean losing health benefits? This is particularly the case for NSHE professional employees who are not in PERS and are instead are on a defined contribution retirement plan, the value of which has tanked in recent months as the stock market has collapsed.

10. Our position: Do not make dramatic changes in health plan for current employees and retirees. We support, with some reluctance, what the PEBP Board did when requested by the Governor to cut over $50 million from the current budget. If changes are made, such changes in benefits and costs should be equally shared by all participants, i.e. active employees and retirees should bear proportional burdens instead of one group assuming a disproportionate share of any benefit cuts and cost increases. We urge you not to cut off all subsidies for any current retiree or employee. Last but not least, careful study should be made of the consequences of cutting retiree health subsidies for future hires as well, to make sure it does not affect the ability of NSHE and state agencies to hire and retain the best people.

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