State, VSEA agree on new prescription drug plan for retirees

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MONTPELIER -- State employees and the Shumlin administration agreed late last week to switch to a federal program for retiree prescription drug benefits.

Federal subsidies attached to the plan will save retirees and the state $2.1 million to $2.6 million annually, Secretary of Administration Jeb Spaulding said in a news release announcing the agreement Thursday morning.

More important, the stakeholders said, the shift will reduce the state's future liabilities for other post-employment benefits by more than $100 million. The reduction in liability will help buoy Vermont's credit rating and keep borrowing costs low, they say.

Human Resources Commissioner Kate Duffy said the real impact of the agreement is a safer retirement plan for current and future retirees.

"There's a lot of talk about limiting the benefits that we provide to retirees," Duffy said. "The more we can make them affordable, the more we can sustain our commitment, which is something we want to do."

Members of the Vermont State Employees Association are self-insured for health care. Under the new agreement, the prescription drug benefits for Medicare-eligible members, and their dependents, will move to the federal Employer Group Waiver Plan (EGWP), with additional "wrap" benefits to square the new plan with current coverage.

The switch will be finalized with a slight change in state law, expected this spring. It will take effect Jan. 1.

Retired teachers worked with Treasurer Beth Pearce to transition to their own EGWP plan at the start of 2014. VSEA President Shelley Martin said the Vermont-NEA's report of a positive experience gave the state employees confidence that the transition could be managed well.

"We hope to learn from the experience of the Treasurer's office to make sure we do it as seamlessly as possible," Duffy said.

Savings will flow from a federal subsidy associated with EGWP (often called "Eggwhip"). The arrangement is projected to save the state and the beneficiaries money on the cost of premiums, to be shared along the same 80-20 split at which the parties now pay for retiree health care.

Additionally, beneficiaries will maintain access to all the drugs on the formulary list for active employees. In the event that the federal government changes EGWP's structure or funding, the VSEA will be able to revert to its current coverage plan.

The VSEA and administration officials heralded the deal as a win-win. The road to the agreement was rocky, however.

In 2011 and again in 2013, the administration tried unsuccessfully to move retirees to the EGWP prescription plan. This year, H.669 was filed to mandate the switch, and the VSEA bristled at legislative intervention in what they felt should be a matter of collective bargaining.

"It was without the wrap," Martin said about all previous suggestions to move to EGWP prescription drug benefits. The wrap portion of the plan covers any drugs VSEA members would normally be entitled to that aren't part of Medicare.

Martin said members were fearful when a change was suggested because, as originally proposed, it limited their access to certain prescriptions.

"They were terrified that any changes might put their life on the line," Martin said. As retirees on fixed incomes, they were afraid of not being able to afford much-needed medication.

She said the administration offered little by way of explanation about the transition and its benefits when they first put EGWP on the table three years ago - an interpretation disputed by Duffy.

But neither party appears interested in dwelling on the past. They all say they got what they wanted.

"This is a victory for members because they didn't get EGWP forced upon them," VSEA spokesman Doug Gibson said.

VSEA legislative director Steve Howard said the group's underlying goal was to ensure that collective bargaining issues are not decided in the legislative arena.

"If you don't get what you want in bargaining, don't go to the Legislature and get it that way," Howard said. "In that regard, it's a significant win for the union."

Duffy maintains that retiree drug benefits are not subject to the limitations of collective bargaining. But, she said, it's a moot point.

"At some point, I don't really care if we have to bargain or not. I want to get it done," Duffy said.

She said the "side letter" agreeing to EGWP, signed and dated March 14, sidesteps the philosophical disagreement about whether it belongs in bargaining.

"By doing it this way, nobody has to say I was right or I was wrong," Duffy said.

A slight change in statutory language will be required to allow the state to achieve the anticipated savings to future benefits liabilities. The tweak, which is not yet attached to any legislation, will update state law to match a change in accounting methods recently revised at the federal level.

Duffy said savings from EGWP previously had to be placed into a reserve account, but now can be credited to future liabilities in accordance with Governmental Accounting Standards Board (GASB) practices.

The credit applied to future liabilities is where the state will see additional savings beyond the annual reduction in premium costs. With a lower total liability, less money will be needed to ensure its viability.


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