A group of retired Saginaw, Mich., city government workers are suing the city over efforts to consolidate their health benefits plans, and in some cases raise their out-of-pocket costs.
On July 1, a plan approved by Saginaw city council took effect centralizing the insurance of about 740 retirees under the Blue Cross Blue Shield Community Blue PPO 4 plan, the health plan offered to current city employees, estimated to save the city about $3 million annually.
The retirees won't necessarily see any change in medical benefits, but some are expected to have increased out-of-pocket costs, with medical deductibles of $500 for a single person and $1,000 for a family and prescription drug co-pays of $7 for generics, $35 for preferred products and $70 for non-preferred products.
A group of retired Saginaw city workers, though, argues in a class action lawsuit that that plan is a breach of their contracts established under collective bargaining agreements with the city.
Those have varied in some details through the years -- with some workers having different deductibles or some none at all based on their contract -- but all of the agreements stipulated that the workers would be offered the same benefits with the same costs in retirement that they had during employment, even though the plan could possibly change.
"We were kind of surprised to see that the changes were made, because it's not consistent with the contract agreements," said Gregory Gibbs, one of the lawyers representing the retirees.
The lawsuit filed by Gibbs argues that the new plan would create financial hardships for some, or possibly many, of the retirees, like Bruce Palmer, a patrol officer who retired in 1995.
Palmer's wife Vickie, a former restaurant server, suffers from Crohn's disease. She's had several surgeries since the mid-1980s and since the late 1990s has relied on the infusion drug Remicade, administered bi-monthly and covered by the Blue Care Network HMO, in addition to several other drugs -- all with monthly drug co-pays of $2 under Palmer's plan.
Now under the city's new plan, Bruce and Vickie Palmer would have to pay an extra $500 a month in drug costs, they were told at an informational hearing, according to the lawsuit, from a monthly household income of $3,500, about a third of which comes from part-time employment.
Saginaw's employee services director Dennis Jordan has estimated that the retirees are covered under some 22 different health plans, costing the city about $9.5 million annually and well into the future creating an unfunded liability of some $211 million.
The problem of "legacy costs" for retiree benefits eating into police, education and transportation budgets is one other local governments in Michigan and elsewhere are dealing with. Stockton, Calif., was granted bankruptcy protection by a federal judge in May, and about a dozen other California cities face similar financial problems.
Though Saginaw recently reduced its police budget by about $1 million, Gibbs, the attorney representing the retirees, said the city is not in markedly bad financial shape. "They have clear alternatives to cutting these benefits."
However, there is "a patchwork of litigation" in Michigan, Gibbs said, with courts in cities like Pontiac, Flint and Inkster considering whether local governments not under emergency state management can restructure pension benefits under state law.