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Office of Administration Announces Plan to Preserve Health Care Benefits for Current, Future Retired Commonwealth Employees

Benefits Will Not be Cut; Plan Changes Will Reduce Cost Increases by $94

Million a Year

HARRISBURG, Pa., Sept. 28 /PRNewswire-USNewswire/ -- The Office of Administration today announced changes to the commonwealth Retired Employees Health Program (REHP) that will preserve generous health care benefits for current and future retired state government employees.

"Rising health care costs are one of the greatest challenges facing employers across the country," Secretary of Administration Naomi Wyatt said. "Commonwealth retirees have excellent health care benefits, and we are committed to continuing to provide one of the most generous health care plans in the country. The changes we are announcing today will standardize the benefits for all 62,000 commonwealth retirees without eliminating coverage for any retiree."

Currently, the approximately 52,000 workers who retired on or before July 1, 2004 have a slightly different health care benefit plan than the approximately 10,000 workers who retired after that date and current employees. The changes announced today will put all retirees on essentially the same benefit plan as current employees and those who retired after July 1, 2004.

"As health care costs continue to rise, we must take prudent steps now to ensure that these generous benefits are preserved for current and future retirees," Wyatt said.

Annual costs for the commonwealth's Retired Employees Health Program have increased 63 percent -- from $336 million to $550 million -- in just four years. Out of that $550 million, retirees contribute less than 0.2 percent toward the cost of health care. Last year, the commonwealth spent an average of $9,250 in taxpayer money per retiree on health care benefits.

Retiree health care costs are a growing concern nationally. Other states and many private companies have had to make drastic adjustments in their retiree health care plans. In Illinois, retirees with less than 20 years of service who are enrolled in the largest plan experienced increases in annual health insurance premiums from $72 to $120 between 2005 and 2007. Ohio created three tiers of retirement coverage, phasing in increased retiree contributions and reducing coverage for retirees with fewer years of service. In West Virginia, retirees now contribute approximately 30 percent of the cost of premiums.

Currently, 37 states require non-Medicare retirees to pay an average of $3,152 per year for coverage and 32 states require Medicare retirees to pay an average of $1,980 per year for coverage. By contrast, the majority of commonwealth retirees will continue to have no medical premium cost sharing after these changes take effect.

Under the new plan, the commonwealth will continue to provide comprehensive health and prescription benefits while reducing projected cost increases by $94 million annually. Even with these changes, the cost for retiree health care benefits is projected to increase by $970 million over the next five years.

Effective February 2008, prescription plan changes will include changing the current 30-day supply co-payment from $7 per prescription to a three- tiered plan with per-prescription co-payments of $10 for generic drugs, $18 for preferred brand-name drugs and $36 for non-preferred brand-name drugs.

In addition, the prescription benefit vendor will better manage retirees' use of prescription drugs to ensure that members are not over-prescribed, under-prescribed or taking multiple medications that can cause serious side effects or counteract each other.

Using the prescription benefits as designed in a cost-effective manner, many retirees will have a minimal increase in prescription costs and some may experience lower out-of pocket costs.

Traditional Medicare coverage for eligible retirees will be replaced with a Medicare Private Fee-For-Service plan. This is primarily an administrative change which, on average, will not increase retirees' out-of-pocket expenses. This plan offers retirees a major benefit in that they will have only one insurance card and will no longer need to submit claims when they see a participating provider, resulting in less paperwork. Retirees will keep the option of enrolling in a Medicare health maintenance organization (HMO) or preferred provider organization (PPO). The only change for non-Medicare health care coverage will be a modest $10 co-payment increase for specialist visits and a $25 increase for emergency room visits.

"There will be no increases in retiree premium shares and retirees will continue to receive generous and competitive medical and prescription drug coverage," Wyatt said. "That is our commitment to retirees for the years of loyal service they provided to the commonwealth."

All affected retirees will receive health benefit plan details in the mail next week and information briefings will be held across the commonwealth to directly assist retirees in understanding the changes. Additional information for retirees is available online at:

EDITOR'S NOTE: Attached is the text of a letter sent today to the Pennsylvania Association of Retired State Employees (PARSE) and state employee union leaders that explains the details of the retiree health care benefit changes. Additional media materials are available online at

September 28, 2007

Arthur Schwartz


Pennsylvania Association of Retired State Employees

State Association Office

2020 Yale Avenue

Camp Hill, Pennsylvania 17011-5456

Dear Mr. Schwartz:

Today we are announcing changes to the Retired Employees Health Program (REHP) that will preserve generous benefits for current retirees while reducing cost increases that challenge fiscal stability of the program. In announcing these changes, we want to stress that coverage is not being eliminated for any retiree.

Retiree health care benefits have long been important to the Commonwealth. The Commonwealth of Pennsylvania began providing health care coverage to its retirees in 1963. When this coverage first was offered, the commonwealth paid just $4 million on an annual basis for the entire program. Even after the commonwealth began to offer paid benefits to its annuitants in 1977, the annual cost of the REHP still was only $68 million. Today, the commonwealth funds in excess of $550 million for the REHP benefit programs, which equates to approximately $9,250 per year per retiree.

Retiree health care coverage is an important benefit that unfortunately has become increasingly rare in America. The cost of these benefits has escalated dramatically in the past two decades. Such increases, among other factors, have caused many employers to eliminate these benefits, leaving retirees without coverage and/or entirely dependent on the Medicare system. The commonwealth remains committed today, as it has been for more than 40 years, to providing these benefits. In so doing, we also must consider the economic realities of the modern health care marketplace.

In just the last four years, the REHP costs have increased 63%. Looking ahead, we see little relief from these escalating costs. In fact, by fiscal year 2008/09, it is expected that the REHP costs will account for 18% of payroll, whereas just five years ago these costs were 9% of payroll. An added pressure point for the commonwealth takes effect this year in the form of a new government accounting standard that requires the commonwealth to account for the entire future cost of retiree health care benefits. We estimate this liability, absent cost containment measures, to be a staggering $14 billion, or nearly one-half of this year's General Fund.

Facing similar cost pressures, many state and local governments, including other Pennsylvania governmental employers, are undertaking or have taken striking measures to reduce increasing costs. These measures include eliminating coverage, limiting coverage to several years, and/or requiring retiree premium sharing for the benefits. In Illinois, retirees with less than 20 years of service who are enrolled in the largest plan experienced increases in annual health insurance premiums from $72 to $120 between 2005 and 2007. Ohio recently created three tiers of retirement coverage effective 1/1/2007, phasing in increased retiree contributions over time. In West Virginia, retirees contribute approximately 30% of the cost of premiums.

The commonwealth has prudently and proactively managed the costs of the REHP program over the years by taking a number of administrative measures to contain increasing costs. Actions taken have included measures that leverage the REHP's purchasing power in the health care market to obtain competitive pricing, making periodic adjustments in the levels of coverage to offset rising costs, and contracting directly for specialty treatment and services such as mental health and durable medical equipment to ensure the best possible clinical management and pricing. To ensure that we can continue to provide a competitive and comprehensive program for our current and future retirees, we are announcing today several changes in the REHP program. Before describing these changes, it is important to understand the measures the commonwealth opted not to take. The commonwealth will not eliminate comprehensive medical or prescription coverage, nor will the commonwealth limit the time period that retiree coverage is available. The commonwealth will not impose premium sharing on annuitants who retired before July 1, 2005. While all options were considered, the commonwealth rejected these measures and opted instead for the most reasonable cost containment measures available, subject to the commonwealth's reservation of rights to make further changes in the future. The commonwealth will continue to offer high quality benefits that include medical and prescription coverage for retirees and their qualifying dependents for the life of the retiree. Against this background, the commonwealth is announcing the following changes to the REHP, which will be effective February 1, 2008.

1. Prescription Benefits: The program will make two changes for anyone retiring prior to July 1, 2004, which will conform the retiree plan to that offered to active commonwealth employees and annuitants who retired on or after July 1, 2004. The first is the adoption of utilization controls, such as step therapy, quantity limits and mail order day supply requirements. The second is an increase in the retail copayments for prescription to a three- tier formulary: $10 for generic drugs, $18 for preferred brand-name drugs, and $36 for non-preferred brand-name drugs. Mail order copayments, which allow a retiree to purchase three times the amount of the drug, will be only two times the retail copayment.

2. Medical Benefits. For anyone retiring prior to July 1, 2004, the REHP copayment for specialist visits will increase from $15 to $25, which matches the specialist copayment for active commonwealth employees and annuitants who retired on or after July 1, 2004. Also, regardless of retirement date, the Medicare supplemental coverage will be replaced by a Medicare Private Fee-For- Service (MPFFS) program. The MPFFS program will provide Medicare Parts A and B coverage, as well as the indemnity coverage currently provided by the REHP Medicare supplemental program. The MPFFS program will be similar to the REHP's current indemnity coverage in that there will continue to be no network, precertification or preauthorization requirements. It is anticipated that, on average, retiree out-of-pocket costs will not increase as a result of the MPFFS. Retirees will continue to have the option to enroll in alternative coverage through a Medicare HMO or PPO.

These changes to the REHP will help ensure that the commonwealth can continue to provide competitive medical and prescription coverage to commonwealth retirees now and in the future. More information about these changes will be distributed to retirees during open enrollment in November.

Very truly yours,

Naomi Wyatt

Secretary of Administration



Susan Hooper (Budget Ofc.)


SOURCE Pennsylvania Office of Administration
Copyright©2007 PR Newswire.
All rights reserved

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