MEBA versus Medical Costs: Clash of the Titans

For the year 2004, last year final numbers are available, growth in drug sales was 8.2%, growth in payments to physicians rose 9%, and hospital spending grew 8.6%.
These numbers reflect a steady trend since 2000.
What does this mean to the MEBA Medical Plan?
It means the end of the MEBA Medical Plan as we know it is close at hand!!!


A little history is in order.
In 2001 the Plan ended the year with a surplus of 42.8 million dollars as compared to the estimated surplus for 2005, as quoted in the MEBA Benefit Watch Publication, of 32.5 million dollars. This is 10.3 million over 4 years or 2.58 million a year loss. But hold on to your hats folks because you have to factor in the 7.5 million that was transferred from the Reallocatable Fund in 2003 and 2004. The actual reserve for the Plan at the end of 2005 should be 25 million for a 17.8 million loss from 2001 through 2005 at 4.45 million a year, if you factor out the 7.5 million transfered from the Training Fund. That's an 11% per year loss in Plan reserves that the Davis administration covered up by the transfer of the 7.5 Million dollars. Since both the Training and Medical Plans are defined contribution Plans this is perfectly legal according to ERISA laws.
The Medical Plan has basically three components.
1. Revenue from contributions, either by contract or retiree assesment.
2. Revenue from assets stocks, bonds, funds, etc.
3. Expenses. Payments to Plan participants, insurance providers, and administration costs.
Current revenue for the year 2005 is estimated to be 23 million from contract companies and from retirees at 4.4 million. Add in 5.1 million in securities and we have our reserve of 32.5 million. Now expenses for 2005 were 23.9 million estimated payment to active members and 16.8 million to retirees for a total of 40.7 million as compared to 25 million in 2001. That is a 12% per year increase in medical expenses paid out by the Medical Plan between 2001 and 2005. These numbers are important because they are going up at a rate of 8% per year nationwide yet at a rate of 12% in the MEBA Plan. Why are our Plan costs so high? The responsibility for this falls squarely on the shoulders of the Plan Administrator and Plan Trustees.
Fast forward to the year 2010.
Employer contributions are now up to 29.67 million based on the DoL Medical component for COLA that is built into current contracts that triggers every January 1st. This has averaged 4.4% since the year 2000. The retiree contribution is now a fixed 9.2 million based on Plan changes that became fully in effect 2-1-2006. Now really hold on to your hats. The 23.9 million payed to active member claims in 2005 has now reached 35.12 million while the 16.8 paid to retirees is now 24.68 million using the current inflation rate of 8% in Medical expenses nation wide compounded from 2005 to 2010. If we were to use the actual MEBA inflationrate of 12% you would not only have to hold onto your hat but tighten the screws that hold your head on too.
So we have revenue of 38.87 million and expenses of 59.80 million dollars in payments for 2010.
But what about the reserve of 32.5 million in 2005. Well that has slowly decreased over the 5 years of this example so that by the end of 2010 we are looking at a 2 million reserve in the Plan. (This should be -5.5 million. Remember the 7.5 transfered from the Reallocable Fund)
This does not factor in the administration cost 17.5 million from 2005 to 2010, payments made to providers and other carriers or the value of Plan stocks and funds. So the actual deficit could be worse but for the purpose of this exercise we intentionally left those figures out just to show the basic change in contributions versus expense and it's effect on Plan reserves. That reserve has decreased and gone into the red because Plan assets are going out at an inflation rate of 8% per year in this example while income is only coming in at a COLA increase of 4.4% a year.
I am sure Davis, AON Consulting, Bob Leef, Lucille Hart, and Allen Szymczak can provide the Trustees with a more detailed and acurate accounting projection then what I have presented here.
Their comments of "catostropic failure and bankruptcy" are still prophetic.
The assertations by Union Representatives that the recently enacted changes to the Medical Plan, that took full effect 2-1-2006 will provide a strong and stable Plan well into the future are preposterious.
In fact they knew in 2004 that the increases enacted in 2003 were insufficient but instead of acting then they transfered 7.5 million in order to artificially inflate the Plan to help insure their reelection.
The future ends in 2010!