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Sera’s Compromise Resolution to a Major Dilemma
Upon receipt of a copy of the Memorandum of Understanding, granting interim approval by the Director of the Department of Management and Budget and the Civil Service Director, of the changes in the costs of health care for retirees, the Michigan SERA Council was faced with the most significant dilemma and perhaps the toughest challenge it has ever faced as an organization. We were aware that as a result of the recent collective bargaining agreements, the health care changes in the contact would affect retirees. We were accustomed to receiving a copy of the letter to the Civil Service Commission transmitting the revision in the health care costs for retirees to the Commission for final approval. The major difference from past years was the inordinate increases in the cost of the health care services for the next three years. There were increases in deductibles, co-payments for services, an added cost for emergency room visits not resulting in hospitalization and co-payments for prescription drugs. What was very problematic and disturbing was the increase in the prescription drug co-payments which ranged from 160% to 186% over what retirees are currently paying.
Fully understanding the linkage between the health care costs for active employees and retirees, we knew that we faced an uphill battle to challenge the recently negotiated cost changes. Even though we have an excellent relationship with the staffs of Civil Service and the Office of the State Employer, we realized that we are an association of retirees and not a union, and therefore did not have the ability to bargain over the costs that left the SERA leadership in shock. We had, in the past, always quietly accepted the negotiated changes primarily because they were modest ones. It would be an affront to our membership for the SERA leadership to passively accept the proposed new cost. At the same time, we were aware that there is a move afoot in the legislature to transfer the responsibility for the health care plan design, costs and approval to the Office of Retirement Services, a move which SERA opposed and continues to oppose (HB 5545). One of our major arguments in opposition to HB 5545 was that we do not believe we would have the same cooperative relationship with ORS staff that we have with Civil Service and OSE staff on health care issues.
The SERA leadership wrestled with what course of action our organization should take to express its displeasure over the unprecedented cost increases. Opinions ranged from doing nothing to undertaking a letter writing campaign to holding demonstrations in front of the Capitol to voicing our displeasure in large numbers at the Civil Service Commission meeting when the Memorandum of Understanding was to be approved. Because of our relationship with Civil Service and OSE staff, top leadership convinced the Executive Committee to at least allow us to approach those with whom we normally discussed SERA issues or concerns. Chairperson Bob Kopasz wrote a letter to the Acting State Personnel Director, Jan McClellan, requesting to be put on the agenda of the Civil Commission meeting when the MOU was to be considered. This letter resulted in the item being taken off of the Civil Service Commission agenda and a request for a meeting with SERA representatives being made by representatives of Civil Service and ORS.
A core group of six SERA members met with the staff of Civil Service and the Office of the State Employer where SERA’s Concerns were expressed and an explanation of how and why the increases in health care costs were determined. Those representing Civil Service and OSE emphasized that the cost increases resulted from the traditional linkage between active employees and retiree’s health care benefits and the value of such a linkage system. More importantly, they emphasized that there was an overall financial target set during negotiations and that target was the controlling factor. The SERA representatives’ ideas were solicited regarding what we would like were there were no fiscal constraints or whether there were any changes in the configuration of the benefits that could be considered that would stay within the fiscal target. After the initial meeting, SERA submitted a position paper to Civil Service and OSE basically stating that dollars should and must not be the sole deciding factor in determining the cost of health care for retirees. (See position paper). Two additional meetings were held. The first was to discuss the cost of the several “wish list” alternatives presented at the initial meeting and to reemphasize the fiscal constraints or target the state had to operate within.
The last meeting was requested by SERA to determine whether there had been any changes considered as a result of our discussions at previous meetings and to convey to Civil Service and OSE staff the priority if any additional money was found to lessen the impact of the negotiated costs on retirees. At the August SERA Council delegates quarterly meeting, this entire matter was discussed at length and motions were made and approved that if any adjustments were made, that the first priority was twofold -to grant both pre- 1987 retirees total relief from the prescription drug co-payments and, to the degree possible, some relief for all other retirees. If dollars were not available to give all retirees any relief (on generic drugs, for example) that any relief available go to the pre-1987 retirees. At the meeting with the state, as a last ditch effort at getting some relief, SERA asked for some special consideration for those retirees who retired prior to 1987 and before. The state came back with a proposal that gave partial relief to pre-1987 retirees based on available dollars. This proposal is contained in the new Memorandum of Understanding which will be considered by the Civil Service Commission on Wednesday, September 24, 2008.
It should be noted that prior to the last meeting held with Civil Service and OSE, a meeting was requested with the State Budget Director, Bob Emerson, and was granted. The purpose of this meeting, which was attended by three members of the core SERA group involved in the discussions, was to determine where the appropriation for health care costs appears in the various bills, how the target figure was established, and whether there was any flexibility in the target figure given to us by Civil Service and OSE staff. Mr. Emerson answered our questions and confirmed the dire fiscal situation of the state and confirmed that the target figure used in our discussions with Civil Service and ORS staff did, indeed, come from him. He expressed his sympathetic understanding of our plight and his and the Governor’s desire to help us, but indicated their inability to do so because of the state’s structural deficit.
Summary
The issue of the unanticipated and extraordinary large increases in health care costs for retirees represents perhaps the greatest challenge to and test of the SERA leadership. Heretofore, our most challenging undertakings have been trying to initiate actions to enhance retiree pensions and explain the financial plight of a large number of state retirees and to prevent actions detrimental to our membership such as the passage of HB 5545. With the issue of the health care cost, we found ourselves attempting to reverse an administrative action which was practically complete and one for which we had no official standing to allow us to become an intervener. The odds were against us. The actions we sought to change had been ratified by recognized collective bargaining units as had been done for many years. Our organization is not a union and in no way could we purport to negotiate over an issue which was so detrimental to our membership. Our challenge was to finesse the situation and use moral persuasion and perceived informal power to effectuate change.
During the several discussions we had with administration officials, both sides were acutely aware that we each were walking a very thin line. The mutual trust each side had for the other allowed us to discuss the issues with the clear understanding SERA could not make any demands and the meetings were for the purpose of the state to receive SERA’s input. After getting direction from the SERA Council membership and clarification on how much financial latitude the state had to make any adjustments, it became easier for the SERA leadership to indicate what adjustments would be consistent with the directions of the Council. Our desire to totally exempt the pre-1987 retirees from the prescription drug increases exceeded the amount of funds the state had available to accomplish this. Alternatively, the state offered to reduce the impact on pre-1987 retirees to the extent that the dollar target would permit. At that point, the SERA representatives were convinced that the state’s proposal represented the best we were going to get. We indicated that should the Memorandum of Understanding be revised to reflect the reduced cost to pre-1987 retirees, SERA, as an organization would neither oppose nor support the MOU at the Civil Service Commission meeting.
So what did SERA gain from its discussions with Civil Service and Office of State Employer staff? We believe we gained a substantial savings in mail order prescription drug costs for pre-1987 retirees. While we would have liked to have been able to get relief for our entire membership, it was obvious that this was not to be. We believe we significantly helped the most financially vulnerable of our members. We trust that the remainder of our membership will realize that should they be fortunate enough to have longevity, the spending power of their current pensions will be tremendously decreased. Hopefully, SERA will be there to assist them when they are similarly situated as the current pre-1987 retirees.
The other gain that was made is that we proved that our organization has the respect of the decision makers regarding our health care costs and did what it could to be responsive to our plight. This bodes well for SERA as we work with staffs of Civil Service and the Office of the State Employer on various issues which may arise in the future. Each side gave a little and crafted a mutually beneficial solution without publicly airing our differences. We gained a trusting, sound working relationship with those who are important to our future.
Finally, we confirmed that HB 5545 is not needed. It is very doubtful that we could have had a similar dialogue and outcome with the staff of the Office of the State Employee Retirement Systems.