Insurance roulette

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Kentucky’s public retirees have read the writing on the wall and they don’t like what it says. Over the objections of a pensioners’ advocacy group, the Kentucky Retirement Systems’ Health Plan Committee voted 3-2 last week in favor of shifting health insurance for over-65 retirees from a self-funded plan operated by KRS to a Medicare Advantage policy sold by Humana. If approved by the full KRS board, the change will take effect next year.

Money is the reason behind this move. KRS desperately wants to reduce its $19 billion unfunded liability but has limited options to do so without violating the “inviolable” pension contract with public workers. Lowering the amount spent on retiree health insurance may be a more attainable objective.

An actuarial consultant estimated KRS would save more than $16 million by turning the insurance business over to Humana, and retirees would save more than $14 million.

So why are retirees so skeptical of a deal that supposedly saves some cash? Perhaps it’s fear of the unknown. “Retirees are afraid,” Shirley Clark, legislative chairwoman of the non-profit Kentucky Retirees group, told the Health Plan Committee. “We’re happy with our plan, we don’t see any use of changing it, and we do not know why you are even thinking about doing this to begin with.”

The decision the committee proposes to make for public retirees is one private retirees – often with no help from their former employers – have to make for themselves. People over 65 can receive Medicare but few find its basic coverage adequate. So many buy Medicare supplemental insurance, which is pricey, but can cover everything from routine office calls to major surgery. They have to purchase prescription drug coverage separately, at additional cost.

Others choose Medicare Advantage, a government-subsidized program which generally costs individuals less than a Medicare supplement policy and may include additional features such as dental, vision and prescription drug benefits. Some insurers even offer Medicare Advantage plans at no monthly fee, perhaps hoping to boost business for their network of providers. It’s a gamble for retirees, just like the 401(k) retirement accounts that have largely replaced traditional pensions in the business world. If you stay healthy, you’ll save what would have gone to Medicare supplement payments every month, but you may pay more out of pocket if you get sick.

Susan Smith, one of the two committee members who opposed the KRS insurance shift, worried that Humana will charge retirees higher premiums than they pay under their self-insured plan. Bobby Henson, the other dissenter, said private insurers are likely to increase rates when the Affordable Care Act takes effect in 2014.

Medicare Advantage faces an uncertain future under the new health care law. HealthCare.gov claims the Obama administration will strengthen the program but skeptics fear subsidies will decline, making Advantage less advantageous in years to come. The government position is that the Affordable Care Act will level the Medicare playing field by dropping federal “overpayments” to the public-private enterprise.

It isn’t hard to understand why public retirees are leery of trading a state-run policy they like for a market-based alternative with less assurance of government support.

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  • Retirees will get screwed, one way or the other. And Humana is not member-friendly at all. They will definitely raise rates as soon as they can, and as high as they can. And they will cut benefits as much as they can. Count on it.

  • The legislature should be forced to transfer enough money out of their retirement system to make it as underfunded as the regular state retirement system (on a relative percentage basis). Then they'd do something about the problem. Or, better yet, just abolish the legislative retirement system and move its assets and all members into the Kentucky Retirement System. All of a sudden the legislature would have a completely new attitude about the problem they created.

  • Our jackass legislators are the ones that need to stand up and take full blame. Despite the law that required the KY Retirement to be funded at a certain level, our self-serving legislators decided not to. I have yet to hear on single legislator state, yes we are at fault. Vote them all out and start over. Sure as heck can't be any worse.