City's health care costs stay flat, but long-term liability looms
| Tuesday, Jul 20 2010 06:21 PM
Last Updated Tuesday, Jul 20 2010 06:21 PM
The city of Bakersfield and its employees got some good financial news Tuesday: Health insurance premiums won't go up next year.
One of the city's three plans will even see premiums drop by 13 percent.
The numbers are welcome, but they won't be large enough to spur a budget adjustment, officials said.
And a dark cloud still looms over the city's health care costs. Unfunded liability for a program that helps subsidize premiums for retired workers stands at more than $108 million. If it isn't paid down, that growing debt could seriously crimp future finances.
The city council's three-member personnel committee -- Ken Weir, Irma Carson and Zack Scrivner -- voted to adopt the plans presented by the city's health care consultant, Tom Morrison of The Segal Co.
In recent years, premiums have generally gone up, sometimes substantially. The latest rates will kick in Jan. 1.
A group of retirees and a contingent of union representatives crowded the afternoon session. Usually, committee meetings are sparsely attended. But the retirees said they want to keep an eye on things after the same committee made an ill-fated attempt last year to switch most retired staffers to a new plan.
Most retirees won't see premiums rise in 2011, though a few enrolled in a Kaiser HMO plan will see a 14 percent hike.
Segal's figures show nearly 1,375 current employees and about 375 retirees enrolled in various plans. Many also have spouses and children covered.
The city pays 80 percent of premium costs for its current employees. For retired workers, there isn't a similar flat percentage because the figure is calculated from a number of variables and differs for each person.
One attendee was retiree Gregory Klimko, the city's former finance director, who expressed concerns about unfunded liability in the so-called Retiree Medical Liability Program. Unfunded liability refers to the value of accrued benefits that the city doesn't have money set aside to pay for.
The number, currently at $108 million for the program, has been growing in recent years because the city has paid only current-year costs and allowed long-term obligations to increase. For example, the city will pay $5.8 million into the program this fiscal year, which started July 1, but is skipping a $3 million contribution to the set-aside account for future payouts.
Klimko told the committee if the city doesn't address the issue soon there could be a "dramatic effect" on the city's pocketbook down the road that is "going to be very significant."
Bakersfield City Manager Alan Tandy agreed the growing liability is a problem that can "be hidden or made to disappear" in the short term but will eventually take up "a greater and greater percentage of the general fund" budget if it isn't dealt with.
Councilmember Weir, a certified public accountant who has been particularly concerned with the unfunded liability, asked for an update at the next meeting after a new actuarial report is completed.
Although the program was closed to new employees starting in 2006, its costs are expected to rise in coming years as more workers retire, city staffers said.
Separately, the city's pension plans have more than $103 million in unfunded liability. The number has grown in recent years following stock market crashes and sweetened benefit packages, making annual payments to the retirement plan rise substantially.
