City hopes for long-term savings by cutting benefits
Oct. 2, 2012
By Jim Logan, OVN Correspondent
In a move intended to save the city of Ojai significant money a generation or two down the line, municipal employees hired after Monday will have to pay nearly all of their health insurance premiums when they retire.
Currently, the city pays 100 percent of its retirees’ health insurance costs and 80 percent of their dependents’ premiums. For city employees hired after Oct. 1, 2012, however, the city will contribute a little more than $100 toward health insurance when those workers retire. Dependents would receive nothing. Retirees and their dependents will have to make up the difference out of pocket.
The City Council approved the change, unanimously, at its Sept. 25 meeting.
“We have to do that. The city budget can’t bear that burden anymore,” Mayor Betsy Clapp said.
The change in policy is intended to reduce — and eventually eliminate — the city’s unfunded liability for its retirees’ health insurance.
“It’s a major correction,” City Manager Robert Clark said Monday.
Benefits for current employees and retirees are not affected by the change.
The new policy comes as cities across the nation struggle to meet their financial commitments for pensions and benefits. Ojai’s decision to stop paying full health care for future retirees follows a similar move by Thousand Oaks.
It also mirrors changes the City Council imposed on itself. Beginning Nov. 1, newly elected council members will be eligible for health insurance coverage for themselves only. Also, those future council members will be subject to the same retirement rules for health insurance as employees.
The moves will, in time, save the city a good chunk of change. The cost of health insurance for retirees is rising at a rapid clip. In her report to the City Council recommending the change, Finance Director Susie Mears noted that the city’s costs rose 45 percent from fiscal years 2009-10 to 2012-13, from $78,783 to $143,308. The city pays $530.75 monthly per employee for health insurance, she said. Family coverage is $849.20.
But the savings won’t show up for years — until those covered under the old policy have no need of health care.
“We will save a substantial amount of money when the current employees retire and die out,” Mears said.
The city gets its health care insurance through the state’s Public Employees’ Medical and Health Care Act, or PEMCHA, which is administered by the California Public Employee Retirement System. Under PEMCHA rules, the city will make a defined “minimum contribution” to a retiree’s health insurance coverage. The minimum contribution, set by PEMCHA, rises each year with a cost of living adjustment. The contribution is $112 for 2012 and goes up to $115 in 2013.
Clark, asked about the potential impact on recruiting employees, said he doubted it would be an issue. With cities and businesses scaling back their benefits packages, a job-seeker’s options are thinning.
“The question would be, how many other employers are there out there who would offer that benefit, and I think it’s a declining number.”
Editor’s note: A change in this story was made Oct. 3, 2012 to reflect that the city of Ojai pays $530.75 monthly per employee for health insurance.
It’s not enough. All public employees benefits need to be rescinded by at least 60% immediately in order to have a present day effect. The facade of having new hires pay , won’t take effect for another 20 yrs.
Many cities nationwide are enacting similar changes in the wake of the economic crash. Businesses are also streamlining their costs. Survival is paramount and everyone must adapt to these changes, plus more… :-O