Pensions and Health Insurance for State Workers Dominate Senate Discussions

Money matters again dominated discussions in the Illinois Senate last week, according to Sen. Ron Sandack (R-21st).

A new report released by the Pew Center on the States confirms Illinois once again boasts the country’s most under-funded pension systems.

The report, “The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs,” shows the state’s retirement systems are only 51 percent funded. The Pew report noted that it is recommended by most experts states maintain at least 80 percent funding. The report also said Illinois has only set aside .1 percent of the almost $44 billion that will be needed to pay retiree health-care costs.

Though the reduction in the value of stock market investments affected Illinois’ pension investments, the deficit can be largely attributed to the failure of state officials to make the required contributions to the state’s retirement systems. In recent years, the state’s Democratic leaders have chosen to defer pension obligations to finance spending increases in other areas.

“Many experts agree that making full annual contributions is key to effectively managing the long-term costs of state retirement systems,” the report noted.

Though an immediate crisis—such as an inability of the state to make pension payments to retirees—is not likely, Illinois and other states must address massive pension deficits before the problem worsens. As the Pew Center warns, “a state’s failure to pay the annual bill for retirement benefits can mean it will have to pay more in the future.” Additionally, as more general revenue funds are dedicated to pension obligations, there will be less revenue for other state obligations, such as education and human services.

In 2011, the Legislature advanced pension reforms that would increase the retirement age and reduce benefits for new employees. Some state officials also are targeting current employees’ benefits. Proponents have floated ideas such as reducing benefits, requiring employees to work longer before they can retire and mandating greater employee contributions toward pension and health-care costs. The Illinois Constitution prohibits any reduction in benefits to current employees. However, there is a vigorous debate as to whether that protection prevents changes to only benefits employees have already earned or if it includes benefits they would earn in the future.

Adding to the ongoing concern about the state's financial condition, State Comptroller Judy Baar Topinka warned that Illinois will likely end the fiscal year in June more than $8 billion in debt.

Topinka projected Illinois will end the fiscal year with roughly the same size deficit it had in 2010. She noted the state has a backlog of more than 208,000 unpaid bills totaling $4.52 billion, along with another $3.8 billion in other outstanding obligations.

"The prescription for our financial recovery is simple: stop spending more than we bring in," she said.

Also last week, a hearing on a recent decision to change health insurance providers offered to state employees and retirees became contentious. The heavily attended hearing was held April 27 to discuss a proposal to end the state’s contract with Health Alliance and Humana.

Health Alliance and Humana were recently outbid by Blue Cross Blue Shield, a change state officials say could save Illinois as much as $100 million annually for the next 10 years. However, the American Federation of State, County and Municipal Employees (AFSCME) have joined Health Alliance, Humana and several lawmakers in disputing the savings.

During the April 27 hearing, Health Alliance CEO Jeff Ingrum contended a switch may actually cost Illinois and state workers and retirees more. Health Alliance provides health-care coverage in 98 of Illinois’ 102 counties. Blue Cross Blue Shield provides coverage in only 38 counties, and while a spokesperson said the company is working on implementing coverage in more counties, critics of the recent proposal point out that state procurement rules require bidders to have a provider network in place when they place their bid.

Both Health Alliance and Humana are seeking to overturn the decision, which could impact more than 100,000 employees. Chief Procurement Officer Matt Brown noted that the Procurement Policy Board will review the award to decide whether or not to re-bid the contract, though a decision presumably won’t be made until after the May 1 beginning of open-enrollment for state workers to choose their health-care plan. The spokesperson for Central Management Services said the department could extend the enrollment period to provide more time to make a decision.

Illinois Sen. Ron Sandack represents the 21st District of Illinois, which includes a portion of Elmhurst.