Maryland Owes the Promised Prescription Drug Coverage to Its Retirees

By Peta Richkus.

To quote the Governmental Accounting Standards Board (GASB)”.. the GASB believes that the government has an obligation to pay Other Post-Employment Benefits (OPEB)* based on the level of retirement benefits promised to an employeein exchange for his/her services.” The judge agrees; now its time for the General Assembly to do likewise. Former DGS Secretary Peta N. Richkus updates the status of MD State Retirees’ fight for their prescription drug benefits.

For all retired State employees, including me, I hope the Maryland House and Senate will finally vote to reinstate the State’s retirees prescription drug plan (the “State Plan”). Bills have been introduced in the current General Assembly session to do just that. And the most recent ruling by federal Judge Peter Messitte in Fitch v. Maryland concluded that, in fact, Maryland statute does unequivocally and contractually commit the State to cover its retirees’ prescription drugs. At least for those hired before July 1, 2011 and retired before January 1, 2019. 

Meanwhile, all parties in the federal lawsuit have requested Judge Messitte to suspend proceedings during planned appeals and leave in place the injunction that continues prescription drug benefits for all Medicare-eligible retirees.

If enacted, companion bills SB 578 and HB 892 would settle this lawsuit in a way that is fair to the State and its retirees.  The bills will be considered next month by the relevant committees: Budget and Taxation in the Senate (March 2) and Appropriations in the House (March 15). Affected state retirees and active employees should be contacting their senators and delegates and members of the committees, and preparing their written and oral testimonies. Given the status of the case, and an increased number of sponsors for this year’s two bills (42 House sponsors vs. 8 for a similar bill introduced in 2020, and 16 sponsors for the Senate Bill), retirees are relieved that their prescription drug benefits have been continued by Judge Messitte’s intervention and that a permanent legislative solution may be at hand.[1]

But the bills first must receive favorable reports to pass out of the respective committees for a full vote and reconciliation of any differences. And the bills must have the endorsement of the leadership. Without the support of Senate President Bill Ferguson and House Speaker Adrienne Jones, the bills will die in committee.


Notified by a May 15, 2018 letter, retirees were stunned and alarmed that their prescription drug coverage would be discontinued at the end of 2018.  A group of affected retirees was prompted to sue and, in October 2018, they obtained a preliminary injunction prohibiting termination of the State Plan.  Because of the injunction, the State Plan has continued to cover retirees since then.

Many of the state’s 242,362 retirees have been pressing very hard over the last three years to avoid being off-loaded onto Medicare Part D, even with the three reimbursement programs enacted in 2019[2] but not implemented because of the federal court’s preliminary injunctionEach retiree may have slightly different reasons for fighting the change but one that we have in common is that, when we were hired and throughout our employment, we were told and understood that the benefits we had as employees would continue into our retirement, in effect, as deferred compensation.  This was a promise made to us which should be honored on both moral and legal grounds.


While the three State reimbursement programs to be superimposed on Medicare Part D by Chapter 767 (Laws of Maryland 2019) would provide some relief to retirees, these programs hardly come close enough to the benefits of the State Plan that were promised to us.

The Formulary

The key is the State Plan’s formulary.  Since the legislature changed the law in 2011, no one has opined, nor could they, that Medicare Part D plans are as comprehensive as the State Plan formulary.  All that any so-called expert can tell you is whether a particular Part D plan covers all or just some of the medications you take today.  Whether the plan you choose will cover a drug prescribed for you after you enroll is a huge gamble.  The cost implications can be catastrophic. Especially for retirees on fixed incomes who have budgeted their lives in retirement based upon the promises of the state.

 
Part D Plan Selection

Currently, there are 21 Medicare Part D plans available to Maryland residents, with 21 different combinations of premiums, deductibles, co-payments and co-insurance.

This is what one must navigate to contend with the burdens of Medicare Part D.  Medicare provides a web site that helps a little.  Input the drugs you are taking now and the site finds the plans that cover your current medications as well as the associated premiums and out-of-pockets costs.

However, there is no way to compare the comprehensiveness of the plans so that you can judge whether the insurance is good enough to protect you against lack of coverage for future prescriptions. Over the last three years, retirees have provided numerous examples of the negative financial impacts from the loss of the benefit and the superiority of the State Plan. In 2019, The Department of Legislative Services (DLS) calculated that 40% of Medicare-eligible retirees would face additional out-of-pocket costs of up to $10,000.


Affordability

The cost of the State Plan calculated as present value over thirty years has been the primary argument made against legislative fixes over the last three years. DLS estimated a $2.15 million price tag just for FY 2021 to administer the three 2019 band aid programs and provide the needed one-on-one counseling services.

Until DLS provides a Fiscal and Policy Note for SB 578/HB 893, the most recent word on the fiscal impact of continuing to include pre-2011 hires in the State Plan was in 2021 when House Bill 1230 was filed. 

The HB 1230 fiscal note stated that, of the $313.1 million in estimated  2022 retirees’ prescription claims, the State’s share would be $119.4 million since State Plan coverage remains in effect.  DLS projected that the State would be paying $37 million if the three 2019 programs superimposed on Medicare Part had been implemented.  So, if the State could have off-loaded pre-2011 hires, the State would have saved $82.4 million in 2022.  In future years, this amount would fluctuate depending upon inflation, population increases that result from retirements, and population decreases because of retiree deaths.  Because of the latter, sooner or later, the State’s cost will go to zero.

The annual cost is, in fact,  quite small.  In the context of a General Fund budget proposed at $58.2 billion, $82.4 million represents a mere 0.02 percent of State expenditures.  Thus, continuing this benefit will have a negligible and decreasing impact on State budget priorities.

The other related argument made against continuing the prescription drug benefit for Medicare-eligible retirees has been the claim that doing so would create such an increase to the state’s Other Postemployment Benefits (OPEB)[3] burden as to threaten the state’s valuable AAA bond rating. There are a number of problems with this red herring:

1. The rating agencies have never downgraded a state’s bonds based solely on an unfunded OPEB liability.

2. States with greater OPEB liabilities than Maryland have continued to maintain their triple-A bond ratings.

3. The state has disproved its own claim since it has covered the State Plan benefit for the last three years and has not had its bond rating downgraded. In fact, in the most recent Standard & Poor’s rating summary, there is no mention of OPEB costs.[4]

It’s time for the General Assembly to acknowledge the state’s legal obligation to its retirees and pass SB 578 and HB 892.


[1] What is not addressed by Judge Messitte’s ruling nor by SB 578 and HB 892 is the plight faced by state employees hired after July 1, 2011, retired or otherwise.

[2] The 2019 Maryland State Retiree Prescription Drug Coverage Program, the Maryland State Retiree Catastrophic Prescription Drug Assistance Program, and the Maryland State Retiree Life–Sustaining Prescription Drug Assistance Program.

[3] Other Postemployment Benefits (or OPEB) are benefits (other than pensions) that U.S. state and local governments provide to their retired employees. Maryland’s OPEB include health care, dental and vision benefits in addition to prescription drug coverage.

[4] August 2, 2021, Standard & Poor’s Global Ratings: Maryland – AAA https://www.treasurer.state.md.us/media/152396/s&p_2021_2nd.pdf

Ms. Richkus, who served as MD Secretary of General Services, Jan 1999 – Jan 2003, and Commissioner, Port of Baltimore, MD Port Administration, July 2008 – Jan 2014, has written previously on this subject

5 thoughts on “Maryland Owes the Promised Prescription Drug Coverage to Its Retirees

  1. Current retirees of Medicare age worked for, retired thinking their benefits would continue and deserve to keep their prescription drug benefts. If changes need to be made, make new employees aware of what will take place once they reach Medicare age.

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  2. I started working for the state in 1997 as a part-time permanent employee. I went into a full time position in 2019. I happen to like the office I work in and did not want to leave. I am 69 and still have 2 yrs and 10 months before I have the 16 yrs required to get benefits at retirement rates. I was promised all the benefits when I started work. Why should I be penalized because I have not retired yet. I took a cut to work for the State but stayed for the benefits. Even when we lost our step increases and received no cost of living increases and furloughs!!! Now I am to be jerked around because of OMallscum and the union. At this rate, I will never be able to retire and will die at my desk.

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  3. I worked for the State since 1981 and am retiring March 1st. In the agreement when I began with the State we were promised health, dental, vision and prescription benefits after we retired. The State should be obligated to cover all those hired prior to 2021.

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  4. I worked for the State of MD starting in January, 1971– teaching at Towson University. Retirees were promised health, dental, vision, and RX benefits after we retired. Within the past 3 weeks I have had to pay $$50 out of pocket for services that should have been covered–i.e., vaccines. The state must not continue to renege on its contractual obligation to retirees.

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