To the editor:
There is an opportunity for Natick and other Massachusetts communities to give Medicare-eligible retirees access to the enormous and highly competitive individual Medicare marketplace (which is currently prohibited under State law)—potentially allowing retirees to save thousands of dollars, choose coverage better suited to their individual needs, and accumulate funds for future health care expenses, while at the same time saving municipalities money and substantially reducing their long-term retiree health care liabilities (also known as OPEB or Other Post Employment Benefit liabilities).
Massachusetts came surprisingly close last legislative session to giving cities and towns the legal authority to explore that opportunity.
H.1399, sponsored by Wellesley State Representative Alice Peisch, would have allowed Massachusetts governmental entities to consider providing Medicare-eligible retirees access to the individual Medicare marketplace, supported by employer-funded Health Reimbursement Arrangements, or HRAs.
For those unfamiliar with an HRA, it is a reimbursement arrangement—not a Health Savings Account (HSA) or Flexible Spending Account (FSA). An HRA is funded by the employer and reimburses retirees tax-free for eligible health care expenses up to an established amount. Depending on how the program is designed, unused HRA dollars can also remain available for future eligible medical expenses.
The Joint Committee on Health Care Financing reported the bill favorably and sent it to House Ways and Means. It remained there when the legislative session ended.
The proposal deserves another look—but so do some of the concerns raised about it.
Much of the opposition to H.1399 appeared to be based on impressions about what an individual Medicare marketplace might mean rather than on how such a program could actually be structured.
The most important fact is also the simplest:
This would be an option, not a mandate.
No municipality would be required to use it. The Commonwealth would not be required to use it. And giving governmental entities the legal authority to evaluate an alternative is very different from requiring them to adopt one.
Today, Medicare-eligible public retirees generally receive Medicare together with supplemental coverage arranged through their former employer. Under an individual Medicare marketplace approach, retirees would remain Medicare beneficiaries, but their employer could provide financial support through an HRA that retirees could use toward coverage available in the individual Medicare market.
That distinction matters because one of the recurring concerns about H.1399 has been that retirees could somehow “lose Medicare” or be forced into Medicare Advantage.
That need not be the case.
A properly structured program can allow retirees to choose traditional Medicare supplemented by Medigap and Part D coverage, Medicare Advantage, or other available Medicare coverage appropriate to their circumstances.
And that choice can produce substantial savings.
Depending on the governmental entity’s existing retiree plan and subsidy level, both retirees and their former employers could save thousands of dollars per person annually in premium costs while maintaining comparable or better overall financial protection.
Why is that possible?
The individual Medicare marketplace is far larger and more competitive than any single municipal retiree group. Insurers compete for millions of Medicare beneficiaries on price, coverage, service and benefits. Retirees can select coverage tailored to their individual circumstances rather than every retiree being placed in essentially the same group arrangement.
That flexibility can extend beyond traditional medical and prescription coverage. Depending on how the HRA is structured, retirees may be able to use available HRA dollars—including dollars remaining after purchasing their primary Medicare coverage—toward dental, vision and hearing coverage that may not beincluded, or may be only partially covered, under their current municipal plan.
Rather than simply reducing costs, the individual marketplace can give retirees the opportunity to use some of those savings to purchase additional benefits that matter to them—or, where the HRA permits it, preserve unused dollars for future eligible health care expenses.
The financial implications go well beyond one year’s premium savings.
Massachusetts municipalities carry billions of dollars of liabilities for retiree health care, commonly referred to as Other Post-Employment Benefits, or OPEB. Those liabilities represent the projected value today of benefits expected to be paid many years into the future.
For Natick, this is not an abstract policy question. According to the Town’s FY2024 audited financial statements, Natick had approximately $186.5 million in retiree health care liabilities as of June 30, 2024, with essentially no assets set aside to fund those future obligations. In other words, virtually the entire liability remains unfunded.
That does not mean Natick has failed to pay retiree health benefits. Like many Massachusetts communities, it has largely financed those benefits as they come due rather than accumulating substantial assets in advance to pay benefits decades into the future. But it does mean that today’s taxpayers and future generations remain responsible for a very significant long-term obligation.
An individual Medicare marketplace would not make that liability disappear. But if an independent analysis demonstrated that Natick could reduce the long-term growth rate of retiree health care costs while maintaining or improving financial protection for retirees, the impact on a liability of this magnitude could be substantial. At a minimum, Natick—and other Massachusetts communities—should have the legal ability to determine whether that opportunity exists.
Why does a lower long-term health care cost trend matter so much? OPEB liabilities reflect not only what retiree health care costs today, but what those costs are expected to become over many years. If those costs grow more slowly, the projected cost of future benefits falls as well. Depending on demographics, benefits, subsidy levels and other actuarial assumptions, that alone could reduce an employer’s OPEB liability substantially—in some cases by 25% or more.
There can be an additional actuarial benefit for some poorly funded OPEB plans. Many governmental entities have set aside little or no money to fund future retiree health benefits and therefore must use relatively low discount rates in calculating their reported OPEB liabilities. In simple terms, the lower the discount rate, the larger the amount that must be reported today for benefits that will be paid decades from now.
Reducing the underlying cost and future growth of retiree health benefits can improve the financial sustainability of the program and, over time, potentially create greater opportunity to prefund those obligations. Greater prefunding may eventually support use of a higher discount rate, which could further reduce the reported liability.
But that potential additional effect is not what drives the 25% or greater OPEB reductions discussed here. Those reductions can result from the lower projected long-term growth in health care costs itself, before assuming any additional liability reduction from a change in the discount rate.
For municipalities struggling with enormous unfunded retiree health obligations, that is not a trivial opportunity.
It can mean greater financial stability, less pressure on property taxpayers, and more resources ultimately available for schools, public safety, roads, libraries and other municipal services.
But those potential savings alone are not enough reason to adopt the model.
Possibility is not proof.
That is where I believe the next version of this legislation can be substantially stronger than H.1399.
Opponents have raised legitimate questions: How do we know retirees will really be better off? What happens to someone with very high prescription costs? Could elderly retirees become overwhelmed by too many choices? Could someone be pressured into Medicare Advantage? And what happens if health care costs continue rising and today’s HRA is no longer adequate years from now?
Those concerns should not be dismissed.
They should be addressed in the legislation itself.
That last concern—the future adequacy of the HRA—is particularly important, and it is one H.1399 already sought to address.
The HRA cannot simply be established at today’s dollar amount and allowed to lose purchasing power over time. H.1399 included a mechanism for HRA funding to increase as the cost of the underlying Medicare coverage benchmark increases, and that protection should be preserved in any new legislation.
In other words, the objective is not merely to demonstrate that retirees are financially protected on the day a program is implemented. The HRA funding mechanism should be designed to help preserve that protection as health care costs rise in future years.
I have proposed that any future version also include a condition precedent to adoption: before a governmental entity could implement an individual Medicare marketplace, it would first have to obtain an independent financial and benefit analysis based upon its own retiree demographics, current coverage and subsidy structure.
The analysis should examine much more than premiums. It should consider deductibles, copayments, coinsurance, prescription drug costs, maximum out-of-pocket exposure and other reasonably foreseeable health expenses across retirees with different levels of health care utilization.
It should also evaluate whether retirees have access to a robust marketplace offering meaningful Medicare Supplement, Medicare Advantage and Part D choices.
And the analysis should be independently reviewed by a qualified health care actuary or other appropriate professional.
The principle should be straightforward:
If the analysis cannot reasonably demonstrate that retirees are expected to have access to financial outcomes comparable to or better than their existing group coverage, the governmental entity should not be permitted to implement the program.
I have also proposed continuing protections after implementation.
Retirees should receive professional and unbiased education, counseling and individualized enrollment assistance at no cost.
No retiree should be required to enroll in Medicare Advantage.
Retirees should retain access to the Medicare coverage options for which they are eligible.
The HRA escalation protection contained in H.1399 should be preserved in any new legislation, and HRA adequacy and retiree affordability should also be reviewed periodically to ensure that the promised financial protection remains meaningful over time.
And the statute should make clear that the new authority cannot be used simply as a mechanism to reduce retiree benefits or shift health care costs from governmental entities to retirees.
Those protections are not obstacles to reform.
They are how responsible reform should work.
There is an understandable tendency whenever retiree benefits are involved to equate “different” with “worse.” But that assumption should be tested against facts.
If an independent analysis shows that retirees can maintain comparable or better protection, save thousands of dollars in premiums, obtain substantially greater choice, and receive professional assistance selecting coverage—while their former employer also saves money and materially reduces its long-term OPEB liability—it makes little sense for Massachusetts law to prohibit the governmental entity from even considering the alternative.
Conversely, if the numbers do not work for a particular retiree population, the entity should stay with its existing arrangement.
That is precisely why this should be an option.
The debate over H.1399 should therefore not become a choice between protecting retirees and protecting taxpayers.
Properly designed, this approach has the potential to do both.
The question for the next legislative session is not whether Massachusetts should force municipalities into an individual Medicare marketplace.
It should do nothing of the kind.
The question is much simpler:
Should Massachusetts give its governmental entities the ability to determine, based on independent analysis and strong retiree protections, whether this alternative could provide better value for retirees and taxpayers alike?
That is an option worth having.
David Kornwitz
Chair, Wellesley Retirement Board
(writing in my personal capacity)
