CHICAGO — Illinois Gov. Pat Quinn is expected to soon sign legislation shifting more of the funding burden for retiree health care to recipients, a move projected to save more than $250 million annually and shave billions off the state’s other post-employment benefits unfunded liability.

“This new law is a game-changer,” said state Sen. Jeff Schoenberg, D-Evanston, who spearheaded the legislative effort to reform retiree health care subsidies. “Not just because of the annual savings but also because of the impact on the state’s $33 billion unfunded retiree health care liability.”

The House and Senate approved the reforms in SB 1313 last week. It takes effect July 1. Currently, the state fully covers the premiums for those who retired prior to 1998. For retirees after that date, it provides a 5% subsidy for retirees’ health care premium coverage for every year of service, fully covering the premiums at 20 years of employment. 

The state covers the full cost for about 90% of more than 78,000 retirees in the group insurance program that covers a total of 357,800 when current employees are counted.

Illinois projects the subsidies will cost more than $877 million fiscal 2013. The state funds the benefits, which fall under the category of other post-employment benefits, on a pay-as-you-basis. As of June 30, 2011, the state carried a $33.3 billion unfunded OPEB liability.

The state does not have a clear estimate as to how much the reforms will shave off the unfunded liability, but it’s expected to be significant, Schoenberg said. Based on the previous year’s $30 billion unfunded liability figure, the changes were projected to reduce it by as much as $9 billion.

Under the bill, the Illinois Department of Central Management Services will determine the subsidy based a sliding scale that will take into consideration length of service and a retiree’s ability to pay. The benefit levels are subject to collective bargaining negotiations with state unions, but CMS ultimately can impose a decision in the event an agreement with unions can’t be reached. 

The General Assembly’s Joint Committee on Administrative Rules is empowered to review any CMS decisions. The state’s overhaul is unique in that it establishes payment tiers with those who can afford it paying more, Schoenberg said.

State lawmakers have long talked about reining in the generous retiree health care benefits, and last year the effort advanced when the legislature’s Commission on Government Forecasting and Accountability hired Mercer Consulting to review the program. Legislation, however, then stalled.

Quinn praised passage of the bill. He is pressing lawmakers to reform the Illinois pension funding system, which carries $80 billion in unfunded liabilities and skyrocketing payments of $5.2 billion in fiscal 2013 and pose a threat to the state’s rating and fiscal stability.

“I am encouraged that legislators have taken this step towards restoring fiscal stability to Illinois,” he said in a statement.

Retiree health benefits are also a key element in Quinn’s reform proposals that ask employees to voluntarily shift to a new plan with a higher retirement age, higher contributions, and changes in cost-of-living increases in exchange for maintaining health care subsidies in retirement.

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