Budget Includes Retiree Pharmacy Benefit – But How Long Can the State Support the Cost?

Maryland’s Democratic and Republican lawmakers alike are committed to passing legislation this year that will restore a prescription drug benefit program for retired state workers, but the hard work of crafting legislation is only just beginning.

Del. Eric Bromwell (D-Baltimore County), vice chairman of the Economic Matters Committee, has introduced legislation in the House of Delegates that would keep the state’s existing prescription drug benefits in place indefinitely. The bill has 56 cosponsors, nearly 40 percent of them Republicans, and Bromwell said five more lawmakers asked Tuesday morning if they could also sign on to the bill.

Across the hall, Sen. Katherine A. Klausmeier (D-Baltimore County) is expected to introduce a bill Wednesday that is sponsored by all 47 members of the chamber. Her legislation also seeks to revert state law back to where it was before the pension reform changes.

But there’s a serious question about the impact on the state’s bottom line.

“How this is all going to play out, I don’t know,” Klausmeier said of the challenge legislators now face in helping retirees, while also managing the state’s future pension and benefit liabilities, a figure that’s in the billions of dollars overall. “… It’s got to be very thoughtful. We’ve all got to sit down together.”

Bromwell’s bill was introduced last week, but a fiscal and policy analysis has not yet been released.

Figuring out how to sustainably pay for the program into the future is going to be difficult, Bromwell acknowledged.

The program was already viewed as unsustainable in 2011, when lawmakers in Annapolis passed a pension reform package that would shift retirees from the state’s prescription benefit plan to Medicare for Medicare-eligible retirees by July 2019, intended to coincide with the closure of the “donut hole” coverage gap in Medicare Part D. The reform of retiree health care was a critical part of overall pension reform, helping to reduce a portion of Maryland’s post-employment benefits liability by half, from $16 billion to roughly $8 billion.

Things got complicated in 2018 when federal lawmakers made a move that closed the donut hole six months earlier than expected. Proposals that would have extended the state’s coverage beyond the donut hole closure failed to gain support in the General Assembly last year and lawmakers ultimately ended up accelerating the shift to Medicare for retirees to match the federal reform.

But many of the state’s retired workers were blindsided by the shift. After the vote for pension reform in 2011, retirees said they didn’t receive notice about the planned future changes to their benefits, and the accelerations at both the state and federal level left them with only months to adjust to a Medicare plan that increased costs for many retirees, according to a lawsuit pending in U.S. District Court.

Ultimately, a judge ordered that the state must maintain the retiree benefits while the case is pending.

At a fiscal briefing for the legislative budget committees Monday, lawmakers were told that the money was not explicitly detailed in the governor’s proposed budget plan.

But in an interview with Maryland Matters on Tuesday morning, Deputy Budget Secretary Marc Nicole said the funding is in the budget to continue with retiree pharmacy benefits in the same way they were funded last year. The allocation is not particularly noticeable, evident only as a non-decrease in the line-item expenditure for pharmacy benefits in Appendix O of a budget highlights book; if the cancellation of the benefit had been included in the governor’s budget, that allocation would have been expected to decrease.

On Monday, David C. Romans, fiscal and policy coordinator for the Department of Legislative Service’s Office of Policy Analysis, said it would cost about $120 million annually to maintain the pharmacy benefit for retirees.

Keeping the program also adds about $10 billion to the state’s benefits liability, which is factored into things like the state’s bond rating.

A group of retired state workers impacted by the potential shift off of the state plan are expected to be in Annapolis on Wednesday advocating for a permanent restoration of the program. The lawsuit filed by retired state employees had argued that changes made to their prescription drug benefits long after their employment were an unconstitutional violation of their property rights, among other infringements. The lawsuit remains pending.

Bromwell said lawmakers will seek to more completely address the issue this year through the budget or by legislation. The prescription drug benefit program’s cost could be decreased by legislative efforts to reign in prescription drug prices, but that likely won’t generate enough savings to avoid a difficult discussion about funding for the post-retirement benefits, he said.

Bromwell avoided pointing fingers Tuesday about what went wrong and instead focused on finding a solution.

“Sometimes we make mistakes, and I think we made a mistake on that,” he said. “And I’m committed to fixing it.”

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