2007-04-04-ATM-AC-rpt1 - Laserfiche WebLink

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APPROPRIATION COMMITTEE 1st REPORT, APRIL 4, 2007, TO 2007 ATM offered by the Town, provided that the benefits under the plan, coupled with Medicare parts A and B, are of comparable actuarial value to the retiree's currently existing coverage provided by the Town. As a practical matter, most of the Town's retirees have already enrolled in the Town's Medicare extension plan. Acceptance of Section 18 will require that all retirees do so. There are at least 32, and perhaps as many as 60, current retirees eligible for Medicare who have not enrolled in the Town's extension plan. Upon acceptance of the statute, each of the Town's retirees who is not already enrolled will be required to provide the Town with the information necessary to effectuate his or her transfer to the Medicare extension plan. The statute mandates that a retiree who does not submit the required information "shall no longer be eligible for his existing health coverage." The purpose and intent of this Article are to reduce the Town's costs in supplying health-care coverage to its retirees and their dependents. Additionally, because all retirees will be enrolled in the same Medicare extension plan provided by the Town, acceptance of Section 18 will result in the uniform treatment, handling, and payment of health insurance claims and benefits. If Section 18 is accepted, that Section requires the Town to pay any Medicare part B "delayed enrollment penalty" which may be assessed by the Federal government on the retiree as a result of the retiree's enrollment in Medicare part B at the time of his or her transfer into the Town's Medicare extension plan (rather than when first eligible-typically at age 65). As indicated above, there maybe up to 60 persons for whom that penalty would have to be paid. The penalty is a 10% surcharge for each full 12-month period between the end of the period when the retiree could have initially enrolled in Medicare part B and the end of the period when the retiree actually enrolls. There is no upper limit on the surcharge. For example, if three full 12-month periods have passed, the surcharge is 30%; if five, the surcharge is 50%; if 10, the surcharge is 100%; etc. Additionally, the penalty applies for the entire time the individual is enrolled in part B. In CY2007, the Medicare part B monthly premium is $93.50. A 10% surcharge would result in a monthly penalty of $9.35, or $112.20 per year; a 30% surcharge, $28.05, or $336.60 per year; a 50% surcharge, $46.75, or $561.00 per year; and a 100% surcharge, $93.50, or $1,122.00 per year. The exact amount the Town would have to pay, year by year, in penalty surcharges has not yet been determined. It will depend upon how many of the potential 60 retirees the Town can, by virtue of accepting the statute, require to enroll in its Medicare extension plan; how many full 12-month periods for each of those retirees have passed; how long each of them remains enrolled in the Town's extension plan; and how the base premium changes in future years. whatever the total amount is, it will offset what the Town projects as a savings from the acceptance of Section 18 of about $1,200 per retiree per year for those with individual coverage; more for those with family coverage. Based on the CY2007 Medicare rates and surcharges, the above examples demonstrate that acceptance of Section 18 will produce a net savings to the Town for each of the current retirees with individual coverage who will be required to enroll in the Town's extension plan and for whom the surcharge is 100% or less. For each of them, the annual penalty expense to the Town would be less than the projected $1,200 annual savings. Any of those new enrollees with individual coverage for whom the surcharge is 110% or greater would result in a net expense to the Town. (The percentage at which a savings changes to an expense would be higher for those new enrollees with family coverage.) However, as the number of transitioned retirees on the Town's extension plan decreases over time through attrition, the overall net savings to the Town will increase because their penalty expense will be removed while all subsequent enrollees will have j oined without any penalty. Page 11 of 39