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Rising retiree health costs pose major concern for church
June 22, 2006
A UMNS Report
By Neill Caldwell*
United Methodists have a strong tradition of caring for their retired pastors.
The double-edged sword of escalating health care costs and growing numbers of
retirees receiving benefits is making that an increasingly difficult proposition.
Some in the denomination worry that the church will follow the lead of many
secular corporations and be forced to eliminate health care coverage for its
retirees. Half the benefit plans in the country have been lost in the past
decade, according to the American Benefits Council. Even financially strong
companies have decided to stop contributing to retiree plans thanks to huge
jumps in insurance premiums, medical services and drug costs.
The annual conferences, regional organizational units of the United Methodist
Church, are responsible for providing health care coverage for their retired
clergy members and other employees. The annual conferences have no control
over health care cost increases, which show little sign of slowing down. In
an effort to hold on to these benefits, conferences have had to increase the
level of cost-sharing on the part of participants in these plans, or have had
to decrease options of coverage and eligibility.
The larger problem may be future liability. The
churchwide Board of Pension and Health Benefits estimates that the denomination’s unfunded liability ? what
would be required to meet all health care promises for the future ? stood
at $2.5 billion in 2002, the most recent measurement. Even when you reduce
that figure by 10 percent, the average that retirees are paying into their
respective programs is still $2.2 billion.
“That’s a projected benefit cost, way out in the future,” said
Barbara Boigegrain, top staff executive at the Board of Pension and Health
Benefits. “But it’s still highly unlikely that the denomination
can pay that. What we have to address is the plan design and how to reduce
that amount.”
Boigegrain says this is the top financial issue facing the denomination.
“I’m hesitant to say the word ?crisis,’ but the trend
is alarming,” she said. “This needs to be a call to action. We’re
at a crossroads. This issue has come to the forefront for many annual conferences.
We’re at the ?address it or lose it’ point when it comes
to health care benefits for our retirees.”
The 2000 General Conference, the denomination’s
top legislative assembly, directed the Board of Pension and Health Benefits
to
gather information from
the annual conferences about retiree health care issues. The board found that
plans vary widely from conference to conference, but that all conferences have
access to health care benefits for retirees. Some conferences fund plans for
staff and local church employees as well as clergy. Most have some level of
cost sharing by participants in the plan and some conferences offer a prescription
drug program, or vision or dental benefits. Some conferences have been forced
to stop paying into retiree benefits plans entirely.
One common challenge conferences share is that increased retiree benefit costs
are taking a bigger chunk of annual budgets, and in many cases ministry areas
are suffering. The costs of benefits are also mentioned as limiting the dollars
that can be spent on staff salaries, building maintenance and other basics.
“This has already had a major impact on conference budgets,” said
Boigegrain. “We’ve pulled some sample conference budgets to get
a piece of the financial picture. This review indicated that over the next
10 years, retiree health care costs may be up 7 to 27 percent of an annual
conference budget. So, while it may not take over completely, it will represent
a higher and higher percentage.”
Conferences are under financial pressure for a
variety of reasons, Boigegrain said. “When conferences look for places they can reduce costs, I’m
afraid a reduction in retiree health care benefits will be one of the first
to be considered.”
This is not the first time the denomination has
faced this kind of situation, said Lisa Schilling, managing actuary at the
pension and
benefits agency. “Prior
to 1982, we had the same kind of situation with big, unfunded pension liabilities,” she
said. “In the ’70s, we became very aware of this growing imbalance,
and put in a plan that dealt with it effectively. Those pastors who retired
prior to 1982 are receiving benefits today because we were able to work out
a program. So it’s entirely possible that we can work it out again for
healthcare.”
Conference-level solutions
A strong shift has occurred to conference-based service rather than a denomination-wide
program because of key differences in the way benefits are approached.
Many annual conferences have combined their health insurance buying power
through HealthFlex, a managed-care insurance program administered by the Board
of Pension and Health Benefits. The agency offers HealthFlex to more than 29,000
participants and their family members in 28 of the 63 U.S. conferences. The
benefits available depend upon the plans the program sponsor elects to offer.
The agency also offers the Comprehensive Protection Plan, which provides disability,
death and other supplemental benefits to about 22,000 participating clergy
and their families, and the Basic Protection Plan, which provides long-term
disability and death benefits for clergy and lay employees of the United Methodist
Church and church-related organizations.
The Florida Conference was among the first to
participate in the health insurance plan that the denomination offered, said
Randy Casey-Rutland,
the conference’s
interim treasurer. However, last January, the conference left the HealthFlex
plan for both retirees and active clergy, and contracted a new plan with United
Health Care as the provider.
In 2001, the Florida Conference asked retirees to pay in $10 per month per
person. Before then, retirees had been receiving a Medicare supplement at no
cost. At the 2002 annual session, the conference implemented a plan to establish
a scale. If a pastor retired prior to 1985, the pastor pays $10 a month. A
clergyperson who retired between 1985 and 1989 pays 10 percent of the premium.
If a pastor retired in 1990 or after, the payment is based on years of service.
For each year of service, pastors receive a 2 percent credit toward the cost
of health insurance, capped at 80 percent.
Only those conferences that have taken steps to set aside money to offset
their growing liability can be considered to have a healthy retiree benefits
program, Boigegrain said.
“The conferences seeing the spiraling costs are the ones that have not
set aside reserve funds,” said Don Rogers, executive director for Virginia
United Methodist Pensions Inc.
Some conferences “self-fund” their
insurance programs, meaning what is paid in premiums is returned in claims.
But when
claims outpace premiums,
along with apportionments and investment income, the conferences must tap into
reserve funds.
Plan of action
Boigegrain has been meeting with the denomination’s
bishops and suggesting a three-point strategy toward combating this growing
problem.
She believes the church needs to look at what
is being provided on a conference-by-conference basis, and that each conference
must
address its plan’s design. “Is
it achieving what you want it to do?” Boigegrain asked.
Second, conferences must address the level of participant contribution in
their plans, knowing there needs to be participation if the benefit is to be
viable in the future.
And finally, each conference must project what
the cost of retiree health care benefits will be, and then put in place a
funding
plan to cover that cost. “The
burden is getting to be too great on our conferences,” Boigegrain said. “It’s
unsustainable.
“I’ve talked about this every place I’ve gone and mentioned
it in every speech I’ve given. We have offered to be supportive of annual
conferences. We’re creating a report to enlighten the denomination and
working with the health care task force to develop additional strategies.”
The agency offered legislation at both the 2000
and 2004 General Conferences to do retiree health evaluations, which have
raised the
board’s level
of understanding of costs and impact of providing health care coverage, Boigegrain
said.
Boigegrain quoted recent figures that an average couple without employer-sponsored
retiree healthcare could spend $200,000 out-of-pocket on medical and pharmacy
costs over the course of their retirement.
“What will really be sad is if we put the entire health care cost on
the backs of our retirees,” she said. “The only outcome I can see,
if we continue to do as we’re doing, is that we will follow the lead
of many secular corporations and terminate health care benefits for our retirees.
That would amount to a broken promise to our retirees.”
The issue needs to be addressed in a variety of
ways before it’s too
late to salvage a retiree health care benefits system, Boigegrain said.
“This is a significant issue around caring for our clergy, something
that our denomination traditionally values. I sense a real disconnect with
the way we’re managing retiree health care,” she said. “If
we don’t address it in the next few years, we’ll have to get out
of the business of providing retiree health benefits. And then it will be through
negligence that we let this go away.”
*Caldwell is a freelance writer based in High Point, N.C.
News media contact: Linda Green, Nashville, Tenn., (615) 742-5470 or newsdesk@umcom.org.
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