City's funding for future retiree healthcare costs falls short
Yoon proposes new legislation to boost reserve
Healthcare costs for retired Boston city workers are expected to top $3 billion over the next 30 years, and the city is coming under increasing pressure to start setting aside more taxpayer money to cover the costs.
Over the last two years, city officials have placed $45 million into a reserve fund to cover future health insurance premiums, less than half the $111 million a city consultant said Boston would need this year to be on pace to meet the obligation.
Councilor Sam Yoon proposed a home-rule petition yesterday that would require the city to set up a trust fund for the money and establish a firmer schedule for cash contributions.
"To ensure that we are able to fulfill our promises to our retirees we need to start putting money aside to fulfill those obligations now," Yoon said. "We can't just put our hands over our eyes and cover our ears and assume and hope that this problem is going to go away."
Yoon made his proposal as legislators consider a bill that would require cities and towns to set up trust funds for future retiree healthcare costs. The House bill, sponsored by Representative Jay R. Kaufman, could be presented at an informal session as early as this year, legislative aides said.
Lisa C. Signori, chief of administration and finance for the city, said Mayor Thomas M. Menino's administration would support such legislation. She said the administration was reviewing Yoon's proposal.
"I welcome the councilor's recent attention to an issue the mayor and the city have been closely monitoring and funding for the last two years," Signori said.
But Samuel R. Tyler, executive director of the Boston Municipal Research Bureau, said the bill and Yoon's home-rule petition might require that cities and towns pay according to the 30-year schedule, which he said Boston could not be expected to do in the current economic climate.
"In Boston's case, they've done what you would expect," Tyler said, referring to the $45 million officials have transferred from a general reserve account to one earmarked for future healthcare costs. "If Boston were to fully fund the 2008 annual contribution based on a full funding schedule, the city would have had to have raised another $86 million to put in there. That's not practical right now."
Yoon's proposal was set aside for a future hearing. After a hearing, the full council and the mayor would have to approve the measure before sending it to the Legislature for Beacon Hill approvals.
Councilor Stephen J. Murphy, chairman of the Ways and Means Committee, said establishing a trust fund would remove the money from the city's available reserves and could negatively affect its bond rating, which is key to the city's borrowing ability.
"All you're going to do is deny yourself access to that money," he said.
The long-term bill for retiree healthcare costs is a product of the city's promise to continue paying its retirees' healthcare until they die, even after they reach the age of Medicare eligibility. The city pays 75 to 85 percent of the premiums, while the retirees pick up the rest.
Tyler's group has urged the city to begin requiring eligible retirees to enter Medicare, which would substantially reduce the cost to city taxpayers. But the move would be unpopular with employee unions, which favor the options available under the city's health insurance and whose retired members could face larger out-of-pocket costs under Medicare.
Tyler said other cities and towns have negotiated a requirement that retirees enter Medicare if the municipality agrees to pay additional costs retirees face.
In 2006, there were 1,700 Medicare-eligible city employees and retirees who had not joined the federal health insurance program, according to the Boston Municipal Research Bureau.
"As a means to try and control health insurance costs, the city should begin to require that eligible employees join Medicare," Tyler said. "You could have a substantial savings in overall premiums."
John C. Drake can be reached at jdrake@globe.com. 