Bills designed to block any change to retiree health coverage for state and local public employees have been introduced repeatedly by legislators in both parties over the past 30 years. But the latest statewide “anti-diminution” measure, inspired by an ongoing controversy in New York City, would be the broadest and most costly yet—and more than two-thirds of state lawmakers are supporting it.

Most New York state, municipal and school district employees who retire directly from a government payroll after minimally vesting in a public pension system can retain coverage under their (typically gold- or platinum-level) health insurance plans, with little or no required personal contribution. Also known as other post-employment benefits, or OPEB, this perk has vanished from employee compensation packages in most of the private sector.

Unlike pensions, these benefits are not pre-funded, and instead get financed after an employee has stopped working—that is, after they are no longer providing a service to taxpayers.

The cost of these future unfunded benefits is massive: New York public employers have promised over $300 billion in retiree healthcare benefits and have set aside little to pay for it. These costs have mushroomed as healthcare costs have outpaced inflation and retirees’ life expectancy has risen:

• New York state government expects its retiree healthcare costs to rise 59 percent above FY23 levels by 2028.
• Some upstate cities are spending more on coverage for their retirees than on healthcare for current employees.
• The MTA expects its OPEB costs will top $1 billion per year by 2026.

In New York City, retirees from city agencies enjoy no-cost family health coverage, costing city taxpayers over $3 billion annually. As part of this, NYC reimburses its retirees for their Medicare Part B premiums, a benefit worth about $2,000 per year that comes on top of their pension and their social security. All told, NYC taxpayers are on the hook for $100 billion more in benefits than officials have set aside funds to pay.

City officials aimed to trim these costs by moving retirees over age 65 to (previously voluntary) Medicare Advantage plans, through which private insurers administer a package of Medicare benefits for outpatient services, drugs and hospitalizations. The shift would save the city an estimated $600 million annually.

Retirees have raised concerns about out-of-network costs, access to providers and other changes. Their pushback has included litigation and, most recently, asking state government to pre-empt the City’s move.

Legislation (S8388B/A7866B) filed by Senator Peter Harckham (Westchester County) and Assemblyman Ken Zebrowski (Rockland County) would bar all state and local public employers—not just New York City—from changing the level of retiree health coverage from that which they offered at the end of 2021.

Such anti-diminution pushes are not new but this one would be the furthest-reaching.

The bill wouldn’t just force employers to absorb 100 percent of cost increases since 2021. It would also tie their hands in terms of how benefits were provided. For instance, school districts since 1994 have been subject to a more limited anti-diminution rule that essentially requires retirees to get at least the same level of benefits as active employees. That law (Ch. 729 of the Laws of 1994) has still afforded them enough flexibility to move retirees to Medicare Advantage and make other changes in parallel with those affecting active employees—changes that would be banned under this legislation. From the list of prohibited changes:

These changes shall include, but are not limited to, increasing the cost of such health care, reducing contributions made by a public employer, forcing retirees into Medicare Advantage Plans, forcing them to use health care providers only from pre-designated panels, or forcing them to wait for pre-authorization for medical procedures that are recommended by their health care providers…

Between the Senate and the Assembly, the bill is co-sponsored by 145 of the Legislature’s 213 members. The Senate Civil Service and Pensions Committee approved the bill last week and the Assembly’s Government Employees Committee is set to approve it tomorrow—despite the sponsors saying the fiscal impact for state and local governments is still “to be determined.”

Lawmakers—of both parties—are often unwilling to turn down even the most irresponsible, deleterious demands made by New York’s public employee unions. Governor Hochul must prepare to use her veto pen to protect taxpayers from this one.