PHILADELPHIA — Rhode Island municipalities are shifting retirees onto new health-care exchanges, reducing benefits and raising employee co-pays to curb soaring costs, according to Moody's Investors Service.
Ocean State municipalities are joining cities such as Chicago in using new and multiple strategies to provide budget relief in this area, the rating company said in a report Thursday morning.
Other strategies include reducing employee and retiree benefits, transferring retirees onto Medicare, joining municipal insurance consortiums, and funding other post-employment benefit trusts.
"The state's more fiscally stressed municipalities - including Central Falls, Woonsocket, and Providence - have already employed them and others are following," Moody's said. Central Falls was under bankruptcy protection from August 2011 to September 2012.
Providence avoided a brush with bankruptcy last year when Mayor Angel Taveras negotiated a compromise over reduced health care benefits for retired police officers and firefighters.
Central Falls did go bankrupt, emerging after slashing pension benefits.
Rhode Island rates Central Falls' general obligation bonds B1 with a positive outlook. It rates Providence Baa1 with stable outlook, and rates Woonsocket B3 with negative outlook.
Moody's rates Rhode Island Aa2 with negative outlook.
Rhode Island two years ago passed a law overhauling pension benefits for state employees. Public-sector unions challenged the law and Rhode Island Superior Court Judge Sarah Taft-Carter has ordered mediation talks.
Local governments' employee and retiree health care costs, which account for 6% to 14% of their operating expenses, are increasing faster than the rate of inflation because of the state's aging workforce, increasing life expectancy of retirees, and growth in per-capita use of healthcare services, according to Moody's.
The state enacted legislation as part of its 2012 budget process that empowered municipalities to transfer their retirees to Medicare when eligible.
Municipal consortiums increase negotiating power and limit premium growth, said Moody's. Since most OPEB plans are now underfunded, many municipalities are planning to create trust funds that will accumulate interest and investment income to offset future healthcare expenses, the rating company added.