Read This Letter Supporting Full Reimbursement

RLACEI

RLACEI Members:

Please review the following correspondence from the President of the RLACEI Board and its Directors to the LACERS Benefits Administration Committee supporting full reimbursements of Income Related Monthly Adjustment Amounts (IRMAA). This action is your RLACEI Board protecting your benefits!

August 6, 2022

Los Angeles City Employees’ Retirement System (LACERS)
Benefits Administration Committee

Attn: Michael R. Wilkinson, Chair
202 West First Street, Suite 500
Los Angeles, CA 90012-4401
RE: The Retired Los Angeles City Employees, Inc. (RLACEI) Support of Full Reimbursements of Income Related Monthly Adjustment Amounts (IRMAA)

Dear Commissioner Wilkinson:

On behalf of our nearly 6,000 members, the Retired Los Angeles City Employees, Inc. (RLACEI) strongly supports the staff recommendation to authorize a budgetary expenditure and direct the Los Angeles City Employees’ Retirement System’s (LACERS) plan actuary, the Segal Company, to conduct an actuarial cost study to explore the Medicare Part B Income-Related Monthly Adjustment Amounts (IRMAA) and the Medicare Part B (Medical) reimbursements. The bases of our support are as follows:

Medicare Plans Save LACERS Money and the Savings Are Growing: In 2021, the average monthly health subsidy for an under 65-year-old LACERS retiree was $1,313, while the average health subsidy for a 65+ year-old LACERS retiree was $502 (source: LACERS data). This difference in subsidy of $811 per month is much greater than it was in 2006 (the first date of the LACERS data). In 2006, the difference in the subsidy was just $322 per month.

The Subsidy Money LACERS Saves Frequently Is at the Expense of Its Retirees:

  • Example #1: For an under-65 retiree (who is not in Medicare), the monthly medical premium for Kaiser is $900.24. If the retiree had worked for 12 or more years for the City of Los Angeles (City), they would not have to pay any monthly amount toward the premium. The retiree also would not have to pay any IRMAAs, as those do not kick in until age 65. The total monthly value of this retiree’s benefit paid by LACERS is $900.24.
  • Example #2: For a retiree who is 65+ and has full Medicare coverage, the monthly medical premium is just $262.47. Despite this lower monthly amount, this retiree’s monthly premium is not fully covered unless they worked for at least 15 years for the City. This retiree may receive an IRMAA reimbursement of up to $170.10 per month, for a total monthly benefit of $432.57, compared with the $900.24 monthly benefit in the prior example. However, the retiree in this situation may have an additional IRMAA payment of up to $486.10 per month out-of-pocket!
  • Summary:
    • Under example #1, a retiree without Medicare and with at least 12 years of service pays zero premium cost and zero IRMAA cost. Under example #2, a retiree with full Medicare coverage and 12 years of service pays a premium of $67.24 plus unreimbursed IRMAAs of up to $486.10 per month, for a total out-of-pocket cost of $553.34, while LACERS saves $637.77 per month on their premium!
    • The differences in the outcomes for these retirees are not equitable!

LACERS Retirees with Medicare Have Already Paid for This Benefit: The only way a LACERS retiree can have full Medicare coverage is to have paid Federal Insurance Contributions Act (FICA) taxes during their City career or during some other employment. The fact that they pay the FICA tax during their employment, but still receive a less desirable and more costly result than the retiree who does not have full Medicare coverage (as shown in the prior examples) makes the only partial reimbursement of IRMAAs even more inequitable!

In addition to having paid FICA taxes, many of the more recent retirees also paid an additional 4% of their City salaries toward their retiree healthcare benefit. Despite making this increased payment, their healthcare benefits were not improved. This was another cost shift to the retirees.

The City’s Department of Water and Power Employees’ Retirement Plan Reimburses IRMAAs: The City’s Department of Water and Power Employees’ Retirement Plan, the most similar City retirement plan to LACERS, reimburses IRMAAs if there is excess subsidy. Having LACERS reimburse IRMAAs up to the subsidy amounts would cure this glaring difference in the way the two City pension systems administer their retiree medical benefits.

Older, More Vulnerable LACERS Retirees May Fare Especially Badly with IRMAAs: Even if a retiree’s allowance does not subject them to IRMAA payments, events later in their life may trigger IRMAA payments. Required mandatory distributions from the City’s deferred compensation plan could push a retiree over the IRMAA limit. This is despite the fact that these are the retiree’s own savings and investment returns (no City contributions), and the distributions are federally required based on age.

Another situation that can trigger unexpected IRMAAs for a retiree is the sale of a home. If a retiree decides to sell their home for any reason – including moving into a care facility – this can trigger IRMAA payments. In this situation, the older retiree may not have the financial savvy to file the proper paperwork with the federal government to reduce the IRMAA payments in the following year when their income reverts to the lower amount.

Confusion over IRMAA payments may jeopardize the medical insurance coverage for these retirees.

IRMAA Costs Are Projected to Continue to Increase: In 2007, the maximum IRMAA payment was $161.40. In 2022, the maximum IRMAA payment is $586.20. By 2028, the monthly maximum IRMAA payment is expected to approach $900.00 (source: 2022 Annual Report of the Boards of Trustees of the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds). Such high increases – up by more than three times between 2007 and 2022 continue to shift more of the medical expense burden to retirees.

LACERS Retiree Healthcare Plan is Very Well Funded: As of June 30, 2021 (the most recent data available), LACERS retiree health benefits were 107% funded! This statistic is not only great in absolute terms, but it makes LACERS one of the best funded retiree healthcare plans in the country!

Summary:

Medicare plans save LACERS money, and the savings are growing. The subsidy money LACERS saves frequently is at the expense of its retirees, as fully Medicare eligible retirees unfairly incur more of the cost. LACERS retirees with Medicare have already paid for this benefit through FICA deductions from their paychecks. The City’s Department of Water and Power Employees’ Retirement Plan Reimburses IRMAAs.

Older, more vulnerable LACERS retirees may fare especially badly with IRMAAs as they may be forced to take mandatory distributions from their deferred compensation accounts or have to sell their homes, thus spiking their incomes on a temporary basis. Paying for IRMAAs is only going to get more difficult for retirees as IRMAA costs are projected to continue to increase, thus shifting more of the medical expense burden to retirees.

On behalf of our members, the RLACEI Board of Directors, would greatly appreciate your consideration of the information in this letter and requests that the Benefits Committee recommend that the LACERS Board of Administration direct the Segal Company to conduct an actuarial cost study to explore the potential for full Medicare Part B Income-Related Monthly Adjustment Amounts (IRMAA) reimbursement.

Please feel free to contact me if you have any questions.

Respectfully,
Ruth B. Perry
President
Ruth.Perry@RLACEI.org
(800) 678-4145 Ext. 717

2022 RLACEI Board of Directors: Beverly Anderson, Lucy Artinian, Mark Blunk, Beverly Clark, Nancy Hammoudian, Dennis Harding, Vicki Keoseian, Tom Moutes, Elizabeth Torres

cc: Neil Guglielmo, General Manager
Annie Chao, Commissioner
RLACEI Facebook Page

 

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