Skip to main content

Frank DeFilippo: New State Drug Plan Bad Medicine for Retirees

Lower Health Costs photo.

The Democratic administration of Gov. Martin O’Malley and the General Assembly of the era, abetted by Republican Gov. Larry Hogan, are responsible for dumping thousands of senior state retirees from the Maryland pension system’s prescription drug program and into Medicare to reduce costs at the same time the state seems awash with surplus money from the Trump tax windfall and the budget’s rainy-day fund.

They are, in effect, eliminating the state subsidy, or employer contribution, which is an accepted benefit in many workplaces to help offset the cost of employee health insurance and is generally part of a negotiated salary package. There are 62,727 retired state employees. The shift does not include teachers or municipal employees who receive health care through their local employers. Nor does it include those under 65.

The result is those 65 and over who pay into the state health program and are being shuffled into Medicare Part D will pay slightly less in premiums into the federal plan but much more out of pocket, depending on which plan they select, and what drugs they take, from the long menu of options. That is exactly the opposite of the current expense, wherein the state plan costs more monthly but the co-pay is much less. (Disclosure: I’m among those being repotted.)

Medicare-eligible state retirees, under the present arrangement, are enrolled in a hybrid program of Medicare Part D and SilverScript, a program administered by CVS Caremark Part D Services.

Under federal law, dictated largely by the pharmaceutical industry, Medicare is prohibited from negotiating the cost of drugs, as does, for example, the Veterans Administration and most prescription drug suppliers. President Trump has attacked big pharma and promised to reduce the cost of drugs but has done nothing.

The move by the two governors and the legislature is part of an overall plan to reduce the Maryland State Retirement System’s future unfunded liability portion of the state’s health insurance benefits by half, from $16 billion to $8 billion. And it’s being done at the expense of retirees, a group that arguably can least afford the additional expense and the soaring cost of drugs.

At the same time the state’s payment into the prescription program is being eliminated for older retirees, the state has $860 million in reserves in its rainy-day fund and it also withheld $400 million of the windfall money from the Trump tax cut rather than returning it to taxpayers as Hogan and legislators had promised. That’s a total of $1.26 billion in play money the state has squirreled away. And the month of May was declared a health care holiday for which members of the state plan paid no premiums. This sizable stash could be argued in one of two ways: (1) Prudent management; or (2) Over-taxation.

Although the dramatic break from decades of benefits has been underway since 2011, retirees were blindsided by an advisory letter that was sent out by the Maryland Department of Budget & Management on May 15 warning of the change and outlining procedures for replacing state coverage with Medicare Part D. Hogan indirectly is assigning the blame squarely on the O’Malley administration but Hogan and his administration approved the plan and proceeded with its implementation.

Hogan’s budget secretary, David R. Brinkley, has stated: “The reform of retiree healthcare in 2011 was an important part of overall pension reform in the state. Moving individuals to Medicare Part D played a critical role in reducing Maryland’s OPEB [Other Post-Employment Benefits] liability by half from $16 to roughly $8 billion. The Administration is fully supportive of the actions that were taken by the General Assembly at that time. The Administration believes current law is the best course.” (Italics added.) Brinkley’s testimony was in opposition to recent legislation proposing a one-year delay in the transition.

The budget department’s advisory letter to state retirees was sent out over the signature of Anne Timmons, the director of the employee benefits division. Timmons did not return phone calls, so the precise number of retirees who are affected is not available nor is the actual annual dollar amount of savings to the state.

The letter makes it clear that “In 2011, the prior Administration and the Maryland General Assembly passed pension reform legislation . . . that included the end of prescription drug coverage for Medicare-eligible retirees as of July 1, 2019.” Actually, the plan was the product of a legislative committee headed by former House Speaker Casper Taylor and former state Sen. Barbara Hoffman.

It has been observed that representatives of state employee unions were notably absent from hearings and meetings where concerns about those who would be affected are usually expressed.

One reason for the study was to meet new guidelines set by the Governmental Accounting Standards Board for calculating unfunded liabilities for retiree health care benefits as they do for pensions. Even with the switch, there remains about $10 billion in unfunded future liability for state retirees’ health care.

Unfunded liability can be an elusive phrase. Decoded, it usually means that if each and every one of the 156,366 retirees and beneficiaries in the state pension system became catastrophically ill and decided to collect their pension at exactly the same time, the system would be short of funds to cover them all. The odds of that happening are about the same as the Baltimore Orioles winning the World Series.

At issue is the so-called “doughnut hole” in the Medicare Part D program which was inserted at the insistence of the pharmaceutical industry. Medicare coverage applied up to a certain dollar figure when coverage would stop and enrollees were compelled to pay the full retail cost of prescriptions until a new threshold was net. Again, when individual out-of-pocket expenditures reached a certain level, Medicare coverage would resume.

Part D prescription coverage was added to Medicare under President George W. Bush. The doughnut hole was controversial and opposed by many Democrats and advocates for senior groups, but at the last minute, AARP withdrew its opposition and endorsed the plan which helped to win passage.

The doughnut hole is being eliminated as of Jan. 1, 2019 – six months earlier than originally planned – when full Medicare of prescription drug coverage begins and state retirees will be shifted into Medicare Part D.

“That federal action prompted the Maryland General Assembly on March 27, 2018 to amend and pass legislation. . . that then moved up the end of State prescription drug coverage for its Medicare-eligible retirees to coincide with the new date of January 1, 2019,” the letter to retirees reads.

“Those actions were taken despite the opposition of the Hogan Administration and the Department of Budget and Management” which favored keeping the original transfer date of July 1, 2019 to allow for the adjustment. Preserving the original 2019 date would have kept the transfer a strategic distance away from this year’s elections.

The missive goes on to advise those affected by the change to begin reviewing options immediately to assure a continuum of prescription coverage and avoid higher costs if there’s a gap between plans.

The advisory letter arrived about a month before the primary election date of June 26, when Hogan has no opposition, as an advance warning to begin preparing for the transition. In that way it deftly avoids the thick of the November general election, when Hogan will have a Democratic opponent, which coincidentally overlaps with the Medicare open enrollment period. That could be a time of shocking discovery for state pensioners.

In case anyone’s upset, angry, nauseated, really ill, or just plain furious, take two aspirin and call Medicare in the morning.


Our stories may be republished online or in print under Creative Commons license CC BY-NC-ND 4.0. We ask that you edit only for style or to shorten, provide proper attribution and link to our website. Please see our republishing guidelines for use of photos and graphics.

If you have any questions, please email [email protected].

To republish, copy the following text and paste it into your HTML editor.


Creative Commons License AttributionCreative Commons Attribution
Frank DeFilippo: New State Drug Plan Bad Medicine for Retirees