The Real Risk to Illinois Public Pension Participants: Retiree Health Care

Posted by Jeffrey Brown on Oct 6, 2009

Filed Under (Health Care, U.S. Fiscal Policy)

I’ve noted in prior postings that public pensioners in Illinois have very little to worry about with regard to their pension benefits.  But now the bad news – they do have reason to be concerned about retiree health insurance.

 

As I stated in a previous post, Article XIII, Section 5 of the Illinois state constitution protects pension benefits.  Specifically, it states:

 

“Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

 

That is about as strong of a guarantee as anyone could hope for in this day and age.  Indeed, Social Security offers no such guarantees.  The Supreme Court of the United States has previously (in 1960) ruled that individuals have no inherent “right” to their Social Security benefits (see Fleming v. Nestor).  Congress can alter them at anytime. 

 

But, the above guarantee is limited to the benefits from the retirement system, such as the Statue Universities Retirement System (SURS) or the Teachers’ Retirement System (TRS).  As much as participants might hope that retiree health insurance is a benefit of the retirement system, I (and, more importantly, most of the lawyers to whom I have posed this question) don’t think this argument would stand much of a chance in the courts. 

 

Of course, even in states that do not have explicit constitutional guarantees, retirement benefits are often protected by a contract clause.  And, yes, Illinois has one of those too.  Specifically, the Illinois constitution states:

 

“No ex post facto law, or law impairing the obligation of contracts or making an irrevocable grant of special privileges or immunities, shall be passed.”

 

I have asked a few knowledgeable legal experts about whether this would apply in the case of retiree health care.  The responses are typically consistent – that while contract impairment provisions are sometimes successful with regard to the terms of a retirement system contract, nobody could point to a case where this provision was successfully applied to benefits under an employment contract because employment contracts, by their nature, are temporary.  If you doubt this, just consider the fact that the University of Illinois changed our contracts for the current year to allow the University to require involuntary, unpaid furloughs!

 

Of course, I am an economist, not a lawyer – and I am certainly no judge.  So this is not to say that retired Illinois public servants don’t have a case worthy of court if the state were to eliminate or substantially reduce their retiree health care benefits.  As has been pointed out to me by others, such a case is certainly likely to be given “an attentive listen” by the courts.  But whether that translates into any actual protection of benefits is anybody’s guess.  If I were a betting man (I’m not), then I would best against it.

 

So should retirees panic?  Of course not.  We should never forget that we live in a democracy, and most politicians know that the surest way to lose the next election is to do something that makes a large voting bloc – especially seniors – angry, motivated and mobilized.  Politically, I doubt the state will do anything so drastic as to eliminate retiree health benefits for existing retirees or those close to retirement.  But even if drastic changes are out, the reality of the dire long-run budget picture in Illinois would seem to dictate that retiree health care will be an area that legislators look to for future savings. 

 

So, I would much rather that retired public servants enjoy their retirement worry-free.  But for those who want something to worry about, then retiree health benefits are worth a lot more worry than pension benefits.

9 Responses to “The Real Risk to Illinois Public Pension Participants: Retiree Health Care”

  • George Devries Klein says:

    The danger is that if a public option passes at the federal level, the stat e of Illinois will force all state employees over into it.

  • Subhash Bhagwat says:

    Legislators go by the loudest voices and strongest purses in their constituencies. As long as there are people, irresponsible and ill informed journalists most of all but also similarly inclined citizens, who create the impression that state employees are over paid and “pampered” there is a real danger that legislators will do damage to retirees because they can expect to gain in the next elections. As far as democracy is concerned we should be careful not to boast too much. In our form of democracy corruption is an art developed to such perfection that it only seems better than some third world countries!

  • Todd Blazaitis says:

    I agree, if the “public option” passes (and that is very doubtful) I’m not sure anyone knows how many employers will “push” current and retired employee’s into that system.

    However, as I look down my own long road to retirement, at least 15-20 years, I am confident that no health benefits will be available to me as a University retiree. The State’s financial “hole” has grown so large, and been so poorly managed, that there is no doubt that cuts in benefits will happen, to current and retired employees.

    I’ve heard “in the wind” that the University may be developing an early retirement plan for the most senior (and therefore high-salary) academics – taking their cost off the U’s books and shifting it to SURS and the State. This is a very common tool for cost reduction in both commercial and non-profit organizations.

    So, while the “public option” may not seem prudent at this time, the sheer volume of people retired but not yet old enough for Medicare, will dictate that Congress address their need. And I would expect to have to be one of them.

    Care must be given. It’s that simple. We are not a nation that will ignore the sick and let them die. We are paying now for the care of everyone who shows up at the, extremely expensive, E/R without having had any primary care. We are paying now for illegals who access the system in the same way. When an HMO negotiates a $100/day bed rate, the true $250/day cost of that bed day is re-distributed to others. Everyone has heard of the $6 aspirin.

    I reluctantly conclude that we need to look forward to a single-payer system. Even with government bureaucracy, eliminating the hodge-podge of systems that we have now, should result in savings. Insurance industry profits are not the result of true cost-savings in healthcare, they are the shifting of costs by the insurance industry to others.

    I’m always willing to admit I’m wrong, but that is the future I see.

    Thanks,

  • I have felt for some time that retirees in Illinois would have to contribute in some way toward their health care. This seems especially true in the current state of economic affairs in Illinois. I am probably in a minority by saying that I wouldn’t mind paying a monthly premium of some denomination provided that ALL retirees from some level of state government do the same. I am hoping that the politicians are finally at a time that they can no longer legislate differently for themselves and other high profile people. I am inclined to agree with the writings of our foresighted forefathers and think that Thomas Jefferson said it best when he stated “I think we have more machinery of government than is necessary; too many parasites living on the labor of the industrious” The band aid approach to solving fiscal issues has never and will never work. Untill the citiizens of the state elect true statesman who represent the peoples interests rather than their own we will continue to wollowr in the quagmire that we are in.

  • George Vrhel says:

    Just in case my university colleagues aren’t all aware, we community college retirees have always paid a monthly premium for our health insurance coverage. I currently pay $288.47 per month and am not eligible for Medicare although I’m over 65 and have been retired for over ten years now. We live in interesting times.

  • Let us not forget that many of us who are retired have Medicare as our primary insurer. We pay monthly premiums for that coverage. The State as the secondary has far less exposure. We on Medicare have been subsidizing the State medical insurance costs for some time.

  • Lisa V says:

    I believe that this is a cause of great concern for the retirees. They have the right to enjoy what they have worked for, and to have to worry about it being taken away from them is a terrible thought. However, seeing as though the cost of living continues to increase and that in the next couple of years the money for retirees is going to dimension, we have a serious issue on our hands. Although, there is some hope in Medicare, but not all qualify. It is a slippery slope and many many aspects need to be accounted for. Politicians need to be more proactive in retiree health care and not only declare what they would like to see happen, but actually act on it.

  • Annie N. says:

    I agree that retirees have earned those pensions and health benefits and by all means are entitled to them. The thing that concerns me the most about all of this is the way our government is promising money that we don’t have. I feel like these deficits, especially in the state of Illinois are growing at an exponentially increasing rate. I don’t understand how the government can continue to promise these pensions and benefits when the funding is not there. Perhaps retirees should contribute a bit more towards their health care, to try and reduce the burden on the rest of us. Either way I think something should be changed.

  • Ying says:

    Retirees who have worked hard all their lives deserve the health care. They should not have worried about their health benefits. However, in Illinois, (I don’t want to say it but) I have to admit this is the other way around.

    Illinois is lacking of large sum of fund and the gap expands at an exponentially increasing rate. In consideration of political prospect and due to political pressure, Illinois government is trying to maintain the retiree health care plan without canceling it, yet it is like an old guy carrying on huge package, low efficient and with negative result. I am sure this is a tough problem, since there are lots of complicated issues being inter-reaction with each other. However, to settle it down, there are certain costs we need to pay for. Either in sacrifice of participants’ satisfaction, asking them to share part of the premium so as to decrease the cost or being creative to open up new channels for fund raising works. Fundamental point is it deserves special attention and asks for real actions.