Rising retiree health costs pose major concern for church
Jun. 22, 2006 News media contact: Linda Green * (615) 7425470* Nashville {379}
NOTE: Photographs are available at http://umns.umc.org.
A UMNS Report By Neill Caldwell*
United Methodists have a strong tradition of caring for their retired pastors. The double-edged sword of escalating health care costs and growing numbers of retirees receiving benefits is making that an increasingly difficult proposition.
Some in the denomination worry that the church will follow the lead of many secular corporations and be forced to eliminate health care coverage for its retirees. Half the benefit plans in the country have been lost in the past decade, according to the American Benefits Council. Even financially strong companies have decided to stop contributing to retiree plans thanks to huge jumps in insurance premiums, medical services and drug costs.
The annual conferences, regional organizational units of the United Methodist Church, are responsible for providing health care coverage for their retired clergy members and other employees. The annual conferences have no control over health care cost increases, which show little sign of slowing down. In an effort to hold on to these benefits, conferences have had to increase the level of cost-sharing on the part of participants in these plans, or have had to decrease options of coverage and eligibility.
The larger problem may be future liability. The churchwide Board of Pension and Health Benefits estimates that the denomination's unfunded liability - what would be required to meet all health care promises for the future - stood at $2.5 billion in 2002, the most recent measurement. Even when you reduce that figure by 10 percent, the average that retirees are paying into their respective programs is still $2.2 billion.
"That's a projected benefit cost, way out in the future," said Barbara Boigegrain, top staff executive at the Board of Pension and Health Benefits. "But it's still highly unlikely that the denomination can pay that. What we have to address is the plan design and how to reduce that amount."
Boigegrain says this is the top financial issue facing the denomination.
"I'm hesitant to say the word 'crisis,' but the trend is alarming," she said. "This needs to be a call to action. We're at a crossroads. This issue has come to the forefront for many annual conferences. We're at the 'address it or lose it' point when it comes to health care benefits for our retirees."
The 2000 General Conference, the denomination's top legislative assembly, directed the Board of Pension and Health Benefits to gather information from the annual conferences about retiree health care issues. The board found that plans vary widely from conference to conference, but that all conferences have access to health care benefits for retirees. Some conferences fund plans for staff and local church employees as well as clergy. Most have some level of cost sharing by participants in the plan and some conferences offer a prescription drug program, or vision or dental benefits. Some conferences have been forced to stop paying into retiree benefits plans entirely.
One common challenge conferences share is that increased retiree benefit costs are taking a bigger chunk of annual budgets, and in many cases ministry areas are suffering. The costs of benefits are also mentioned as limiting the dollars that can be spent on staff salaries, building maintenance and other basics.
"This has already had a major impact on conference budgets," said Boigegrain. "We've pulled some sample conference budgets to get a piece of the financial picture. This review indicated that over the next 10 years, retiree health care costs may be up 7 to 27 percent of an annual conference budget. So, while it may not take over completely, it will represent a higher and higher percentage."
Conferences are under financial pressure for a variety of reasons, Boigegrain said. "When conferences look for places they can reduce costs, I'm afraid a reduction in retiree health care benefits will be one of the first to be considered."
This is not the first time the denomination has faced this kind of situation, said Lisa Schilling, managing actuary at the pension and benefits agency. "Prior to 1982, we had the same kind of situation with big, unfunded pension liabilities," she said. "In the '70s, we became very aware of this growing imbalance, and put in a plan that dealt with it effectively. Those pastors who retired prior to 1982 are receiving benefits today because we were able to work out a program. So it's entirely possible that we can work it out again for healthcare."
Conference-level solutions
A strong shift has occurred to conference-based service rather than a denomination-wide program because of key differences in the way benefits are approached.
Many annual conferences have combined their health insurance buying power through HealthFlex, a managed-care insurance program administered by the Board of Pension and Health Benefits. The agency offers HealthFlex to more than 29,000 participants and their family members in 28 of the 63 U.S. conferences. The benefits available depend upon the plans the program sponsor elects to offer.
The agency also offers the Comprehensive Protection Plan, which provides disability, death and other supplemental benefits to about 22,000 participating clergy and their families, and the Basic Protection Plan, which provides long-term disability and death benefits for clergy and lay employees of the United Methodist Church and church-related organizations.
The Florida Conference was among the first to participate in the health insurance plan that the denomination offered, said Randy Casey-Rutland, the conference's interim treasurer. However, last January, the conference left the HealthFlex plan for both retirees and active clergy, and contracted a new plan with United Health Care as the provider.
In 2001, the Florida Conference asked retirees to pay in $10 per month per person. Before then, retirees had been receiving a Medicare supplement at no cost. At the 2002 annual session, the conference implemented a plan to establish a scale. If a pastor retired prior to 1985, the pastor pays $10 a month. A clergyperson who retired between 1985 and 1989 pays 10 percent of the premium. If a pastor retired in 1990 or after, the payment is based on years of service. For each year of service, pastors receive a 2 percent credit toward the cost of health insurance, capped at 80 percent.
Only those conferences that have taken steps to set aside money to offset their growing liability can be considered to have a healthy retiree benefits program, Boigegrain said.
"The conferences seeing the spiraling costs are the ones that have not set aside reserve funds," said Don Rogers, executive director for Virginia United Methodist Pensions Inc.
Some conferences "self-fund" their insurance programs, meaning what is paid in premiums is returned in claims. But when claims outpace premiums, along with apportionments and investment income, the conferences must tap into reserve funds.
Plan of action
Boigegrain has been meeting with the denomination's bishops and suggesting a three-point strategy toward combating this growing problem.
She believes the church needs to look at what is being provided on a conference-by-conference basis, and that each conference must address its plan's design. "Is it achieving what you want it to do?" Boigegrain asked.
Second, conferences must address the level of participant contribution in their plans, knowing there needs to be participation if the benefit is to be viable in the future.
And finally, each conference must project what the cost of retiree health care benefits will be, and then put in place a funding plan to cover that cost. "The burden is getting to be too great on our conferences," Boigegrain said. "It's unsustainable.
"I've talked about this every place I've gone and mentioned it in every speech I've given. We have offered to be supportive of annual conferences. We're creating a report to enlighten the denomination and working with the health care task force to develop additional strategies."
The agency offered legislation at both the 2000 and 2004 General Conferences to do retiree health evaluations, which have raised the board's level of understanding of costs and impact of providing health care coverage, Boigegrain said.
Boigegrain quoted recent figures that an average couple without employer-sponsored retiree healthcare could spend $200,000 out-of-pocket on medical and pharmacy costs over the course of their retirement.
"What will really be sad is if we put the entire health care cost on the backs of our retirees," she said. "The only outcome I can see, if we continue to do as we're doing, is that we will follow the lead of many secular corporations and terminate health care benefits for our retirees. That would amount to a broken promise to our retirees."
The issue needs to be addressed in a variety of ways before it's too late to salvage a retiree health care benefits system, Boigegrain said.
"This is a significant issue around caring for our clergy, something that our denomination traditionally values. I sense a real disconnect with the way we're managing retiree health care," she said. "If we don't address it in the next few years, we'll have to get out of the business of providing retiree health benefits. And then it will be through negligence that we let this go away."
*Caldwell is a freelance writer based in High Point, N.C.
News media contact: Linda Green, Nashville, Tenn., (615) 742-5470 or newsdesk@umcom.org.
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