UNM Retiree Health Plan Gushes Red Ink

The bill for the University of New Mexico retiree health care program is going through the roof, and regents are looking for ways to rein in costs projected to grow over the next 30 years to $153 million a year.

The benefit allows thousands of retirees to stay on the UNM plan as their primary health insurance until they become eligible for Medicare, with the university paying up to 60 percent of the retiree’s premiums.

It is a pay-as-you-go expense, and the perk is taking an ever bigger bite out of the university’s operations money – $14 million last fiscal year. It’s money that could go for other expenses such as faculty salaries.

A newly released audit says UNM should be setting aside $25 million a year to meet future costs of the program.

“We’ve known about this issue since I came on the regents 10 years ago, and we just haven’t had the guts to deal with it,” said Regent Jamie Koch. “This is a very generous benefit that you don’t find in the private sector anymore.”

Added Regent President Jack Fortner: “It’s a tough spot for everyone. It is a real problem and something we have to address.”

There are 2,500 current retirees and dependents in the UNM program now, with another 1,000 employees eligible – meaning they would be if they chose to retire. Another 6,500 employees are in the pipeline but not yet fully eligible.

The audit shows that unfunded future liability for the program has soared by $100 million in the last decade and is projected to be $153 million in 30 years.

That doesn’t take into account the impact on the older retirees and their dependents on the plan’s overall cost.

There aren’t many options for fixing the gloomy financial picture. Short of cutting the program off for new enrollees, the regents could find new money elsewhere, reduce benefits, tighten eligibility or require UNM employees to pay money into a fund before they retire.

“We have to consider eligibility at a certain point,” Fortner said. “We have to consider our contractual responsibility to our retirees and future retirees and our moral responsibility to the people expecting health care they were promised.”

UNM isn’t alone. Similar plans offered by the state and by New Mexico State University also face huge unfunded liability that, if unchecked, will continue to take more operating money.

Meanwhile, the picture at UNM keeps getting worse. The university’s expense for the benefit has been increasing an average of 9 percent a year, according to the audit.

“We can’t just keep kicking the can down the road,” said Regent Gene Gallegos. “We have to find some real solution.”

Wednesday meeting

The regents Audit Committee meets on Wednesday to discuss the findings and the retiree health benefit problem. The authority to amend the retirement health benefits rests with the Board of Regents.

There is a draft resolution to have President Bob Frank create a committee to develop solutions and report to the regents in the 2014 budget year.

“I am keenly aware of the issue and am awaiting direction from the Regents to move forward on how the University will manage it,” he said.

Faculty Senate President Amy Neel said she wanted to wait until the regents meet before commenting.

“We’re slated to be represented on the committee,” Neel said.

That’s very similar to what the regents did in 2009.

The recommendations that came out of that committee led mainly to restrictions of eligibility for the retirement health benefit, which also allows retirees the option of choosing a Medicare senior plan offered through UNM after they turn 65.

The regents tightened eligibility by approving changes that said employees hired after July 1, 2011, would have to be 60 years old with 20 years of service to qualify.

For university employees hired prior to that, retirement eligibility is based on a formula of age plus years of service. For instance, a person 50 years old with 25 years of service at UNM could retire with full health benefits.

A study begun in 2009 found that employees retiring before age 65 when they became eligible for Medicare were driving costs of the program higher. “The pre-Medicare retirees are where the real growth in the longtime liability is,” Regent Gallegos said.

Koch said the changes may have slowed the future growth of the program, but not enough to make much difference.

“I don’t think we should be waiting two years,” Koch said. “The unfunded liability could grow to $190 million by then.”

Fortner said he thinks the regents need to rely on the expertise available at the university.

“I don’t expect anyone has an answer to the question right now,” Fortner said in a telephone interview this week. “I expect it is going to require a series of changes over a period of time.”

Gallegos said regents will be asking for long-term solutions.

“We have an obligation to not hand this off to future regents,” he said.

Koch said the solution is clear but will be tough to swallow.

“The real problem is that we have to put money toward the future of the retirement program if that future liability is going to be addressed,” Koch said. “Where is that money going to come from? Employees are going to have to pay into it; right now they don’t.”

A different health plan

At various points in the past, UNM considered and ultimately declined to join the state Retiree Health Care Authority, which covers most state retirees.

UNM and other agencies that have looked to join the authority in recent years would be faced with paying millions of dollars in “buy-in.”

But the authority is fighting the same battle as UNM.

The future unfunded liability for the state’s Retiree Health Care Authority is $3.3 billion. That’s down from $4.1 billion a few years ago, but board members are struggling to keep the program solvent down the line. There are 50,000 government retirees in the plan, and 40 percent of those are under the age of 65 – pre-Medicare eligible.

The authority made some changes in benefits and dependent coverage for early retirees.

The authority board has directed its staff to make specific recommendations on how to manage a minimum retirement age; increasing years of service; reducing pre-Medicare subsidies and increasing employee and employer contribution levels.

New Mexico State University has its own retiree health plan with a projected unfunded liability 30 years from now of more than $87 million.

Angela Throneberry, senior vice president for administration and finance, said in the past few years NMSU made changes related to the NMSU-paid portion of life insurance and moved to a different prescription drug benefit, which reduced the long-term liability.

Thornberry said in a statement that “NMSU continues to monitor costs related to our benefits and explore opportunities for program changes.”
— This article appeared on page A1 of the Albuquerque Journal