July 3, 1995
by Charlie Marsh

The long-awaited LEOFF I medical costs statewide study conducted during 1994 by the State Actuary, for which cities and counties paid S150,000 has been completed. It was due in December, 1994.

The report in finished form was presented initially to the legislative Joint Committee on Pension Policy (JCPP) on June 13 at Vancouver. I attended by request of the State Association of Retired Officers.

No testimony was permitted. Rather, the entire time was consumed. on an exploratory discussion/dialogue basis between Committee members and an analytical staffer from the actuary's office.

Volumes could be restated here in summarizing meeting discussion on some rather bothersome issues, non-duty disability being one of them, and in conjunction with the 57-page report loaded with graphs, charts, etc. However, I will hold this writing to a minimum and yet present an enlightened overview of the study by selecting pertinent excerpts from the printed report.

Accordingly, text from this point and on-to following pages is 99.9% verbatim language from the report until noted to the contrary.

REPORT EXCERPTS

The major stimulus behind this benefits study is the long held conventional wisdom that the LEOFF I medical benefits pose a major financial problem to political subdivisions, particularly as to long term care. Until this study, however, only anecdotal data have been provided to support this position.

The study, therefore, sets as its major goal the determination of the extent of financial liability facing political subdivisions as a result of the LEOFF I medical reports. As corollaries to this goal, two questions were addressed:

1.       Will these political subdivisions have the ability to meet the projected liability?
2.       Is there future increased risk facing the individual LEOFF I employer?

 
Secondarily, the study attempts to meet the additional purpose of informing legislators of this area of LEOFF which seldom comes before them.

Background Information. LEOFF I membership is divided among 39 counties, 157 cities, 59 county fire districts and 5 miscellaneous political subdivisions. Individual employers are solely responsible for the LEOFF I medical services benefit.

LEOFF I is a closed system (i.e., no new membership). Therefore, active members will move to zero and retirees will continue to grow. In fact, essentially there will be no active members by 2015 and by 2025, membership is estimated at approximately 3,000, none of which will be in active service.

Active LEOFF I membership has an average age of 47, those retired for service have an average age of 66, and those retired for disability have an average age of 58. Retirees overall have an average age just under 60. Two-thirds of all retirees are on disability retirement.

As of January 1, 1994, there were 8,872 LEOFF I members divided into 5,396 retired for service or disability and 3,476 active members.

Projected Medical Costs. The present project cost of medical benefits through the death of the last LEOFF I member is estimated at $672 minim That figure equates to $76,000 for each of the current 8,872 LEOFF I members. That is, if this amount of money was invested in 1994 for each LEOFF I member, their employers would have sufficient funds to coverall future medical costs for the present 5,396 retired for service or disability and 3,476 active members.

The overall projected $672 million cost figure equating to $76,000 per individual member is based on the assumption that retirees pay their Medicare Part B premium.

The impact of Medicare is significant in medical claims payment for retirees age 65 or older. Cost to the employer who does not take advantage of the payments under Medicare Part A and Part B is an additional 209 percent. If the employer opts to pay the Part B premium for its eligible members, cost for those members would increase 22 per¬cent, but the expected claims would be reduced from 25 percent to 33 percent.

Employers Surveyed: In conducting the survey of 261 employers of LEOFF I active and retired members, to obtain information for the actuarial study, the number of employers were reduced to a represent¬ative sample. Selected were 99 employers consisting of 24 counties, 49 cities, 21 fire districts and the 5 miscellaneous districts.. However, 29 of the surveyed employers failed to respond or in few cases returned their survey but too late for inclusion in the actuarial study.

County employers not responding or too late were: Benton, Columbia, Pend Oreille, Skamania, and Spokane. City employers not responding or too late were: Bellevue, Bremerton, Everett, Long Beach, Marysville, Oak Harbor, Pasco, Redmond, Ritzville, Soap Lake, Spokane, Tenino, Vancouver, and Wenatchee. Eight of the first districts failed to .respond as did 2 of the special districts.

Other first class cities surveyed and returning their survey were: Aberdeen, Bellingham, Richland, Seattle, Tacoma, and Yakima. Larger counties responding were: Clark, Grays Harbor, King, Kitsap, Pierce, Snohomish, Whatcom, and Yakima.