Why Providence pegged its Medicare savings at only $800,000February 11th, 2012 at 3:17 pm by Ted Nesi under Nesi's Notes, On the Main Site
A sharp-eyed Providence worker who’s unsympathetic to the Taveras administration spotted this passage in the city’s brief to the Rhode Island Supreme Court in the Medicare case, and asked us to look into it (emphasis mine):
The entry of an injunction has the immediate and deleterious effect of denying to the City approximately $800,000 in desperately needed savings that would have otherwise been realized for the financial year ending June 30, 2012.
If the trial and any appeal of this matter are not finally and conclusively adjudicated in the City’s favor by June 30, 2012 the City will lose all $6 million of the projected savings for the financial year ending June 30, 2013 and will have no choice but to seek relief under Chapter 9 of the Title 11 of the United State Bankruptcy Code.
If the city can only save $800,000, the worker asked, why has Mayor Taveras repeatedly blamed the Medicare ruling for causing $6 million of the city’s $22.5 million projected deficit for this fiscal year, which ends June 30?
The answer mainly has to do with different time horizons.
“The $800,000 in the brief is the lowest legally defensible number in terms of the savings that’s available to us at this point,” Taveras spokesman David Ortiz said. “The savings that the city expected to achieve after we received enabling legislation from the state to move retirees 65 and older onto Medicare was $8 million.”
When Taveras’s aides put together the 2011-12 city budget, they included about $11 million in projected savings from moving those retirees to Medicare starting last July 1. That number got knocked down to $8 million when the federal government refused to waive penalties and other fees for enrolling some of them late.
That gives us $8 million in potential Medicare savings. But Taveras and the court brief usually talk about $6 million in savings at stake. What’s going on there?
Answer: Not all the retirees fought him. Only police and fire retirees filed a lawsuit to block the city from switching them from Blue Cross to Medicare. The other city retirees – former Local 1033 workers, non-union personnel and teachers – went along with it, allowing the city to achieve a projected $2 million of the $8 million in savings.
But the police and fire retirees balked, and they account for the remaining $6 million. In recent weeks, they convinced the courts to block the city from moving them off Blue Cross and into Medicare.
In the meantime, many months passed. Providence’s fiscal year started July 1; the retirees filed suit in October; Superior Court Judge Sarah Taft-Carter ruled in their favor on Jan. 31. By the time the city filed its appeal with the Supreme Court this month, it was too late to achieve most of the original projected Medicare savings for 2011-12.
“The exact number is a moving target on a daily basis and is impacted by many variables, including the age of retirees, date of enrollment, date of retirement,” Ortiz said.
Hence the $800,000 figure in the lawyers’ brief. City officials think it’s possible the savings could have been significantly more than $800,000 if the courts had ruled in their favor, but the lawyers didn’t want to overreach in court. Either way, $6 million in savings was no longer achievable for 2011-12, adding to Providence’s problems.
Importantly from the city’s perspective, though, that $6 million in savings is still achievable in the 2012-13 fiscal year, which starts July 1, if Taft-Carter allows the Taveras administration to move the retirees to Medicare following the full trial expected to start in May. That would put a big dent in the $1.2 billion unfunded liability for retiree health care the city is currently facing.
Tim White contributed to this report.
(photo: University of Mississippi Medical Center)