July 6, 2018
We can understand why Maryland state government retirees were upset by a letter from the Hogan administration informing them that they would no longer be eligible for the state’s prescription drug plan as of Jan. 1 and would have to enroll in Medicare Part D instead. Finding the right plan for whatever combination of drugs an individual needs is daunting, and information about coverage and costs for next year isn’t yet available. At the very least, it appears that retirees will have to pay a deductible of up to $405 that they don’t owe now, and in some cases, the cost of drug coverage could grow by much more than that.
Throwing politics into the mix, as the Hogan administration did with a letter blaming former Gov. Martin O’Malley for the idea and the General Assembly for accelerating its implementation, surely didn’t help. That letter and the defensive response from Democrats are liable to make retirees see the change as a matter of election-year partisanship rather than a painful necessity to maintain the state’s long-term finances. Here are a few key facts that have been missing in the discussion.
This was, indeed, an initiative of the O’Malley administration and was supported by the General Assembly in 2011, and there was good reason for it. A few years before, the Government Accounting Standards Board had decided that states needed to calculate and report their projected liabilities for “other post-employment benefits” (OPEB) — which chiefly meant retiree health benefits. Maryland and most other states just paid those expenses as they came up (rather than creating funds for them, as with pensions), and they had never done the math about how much they might one day owe. But given the skyrocketing costs of health care, it became clear that such expenses needed to be taken seriously, lest future generations get socked with unaffordable bills.
Maryland started modest investments in an OPEB fund the early days of the O’Malley administration but scaled back and briefly stopped altogether during the recession. As part of the fiscal reckoning that followed, Mr. O’Malley and the legislature initiated a broad review of pension and OPEB costs with an eye toward making them more affordable for the state and more sustainable for the benefit of current and future retirees. One of the key recommendations of a study group headed by former House Speaker Casper R. Taylor Jr. was to shift retirees out of the state prescription drug benefit and into Medicare Part D as soon as the dreaded “doughnut hole” in that program was closed under the Affordable Care Act. By itself, such a provision was projected to cut the state’s nearly $16 billion OPEB liability by $5.5 billion and to reduce the necessary annual contribution to fully fund current and future benefits by $400 million.
Though the recent letter from the Department of Budget and Management may have given some retirees a different impression, the Hogan administration does not oppose the policy of shifting retirees into Medicare Part D. While DBM did twice testify against moving the implementation date up to Jan. 1, 2019, it also objected to legislation that would have delayed the switch until Jan. 1, 2020, over cost concerns. In testimony on another bill, Budget Secretary David R. Brinkley explicitly supported the shift to Medicare Part D, which is not surprising since he voted for it as a state senator in 2011.
Also worth mentioning is that the provision moving the implementation date to Jan. 1 (to coincide with the end of the doughnut hole, which Congress and the Trump administration accelerated) provides an important benefit to retirees. It specifies that spouses and dependents of retirees who are not eligible for Medicare can stay on the state drug plan until they are. The Hogan administration initially opposed that idea, saying it would be too expensive and cumbersome to administer. It later changed its mind and supported the provision.
Meanwhile, if both sides are concerned about the burden this shift places on state retirees, the smart course would be to tackle the cost of of prescription drugs generally. The Maryland Citizens Health Initiative is working to build support for the creation of a state commission tasked with increasing drug affordability, potentially through a system of regulation akin to one the state has employed for hospital services for decades. That would be a lot more productive than playing the blame game over a change that’s been in the works for seven years.Last modified: July 9, 2018