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Lavish Washington medical plan imperils budgets

Published on NewsOK Modified: April 7, 2013 at 1:36 pm •  Published: April 7, 2013

HOQUIAM, Wash. (AP) — After this coastal city's 1979 ladder truck finally broke down a few years ago, firefighters have continued their duties by using hand ladders that only reach a couple of stories up.

Without the cash to buy a proper replacement truck, Hoquiam officials went to the ballot earlier this year with a levy proposal totaling $1.2 million. Voters in the town of 8,700 had previously rejected such a plan, but this time agreed to bear the cost of a new truck over the next 20 years.

If it wasn't for the medical expenses of a small group of retired firefighters and police officers, however, the city could have paid it all off in just two years — without raising taxes.

While local governments around the country have dealt with debilitating budget problems in recent years, a Washington state retirement system created decades ago for now-veteran public servants has added particularly daunting burdens for some jurisdictions. Those governments are struggling to manage costs for the most lavish medical plan possible, in which every expense is covered by taxpayers with no support from premiums, deductibles or even copays.

And with the aid of obscure disability boards often staffed by friends or former colleagues of the retirees, public money has directly covered things like hot tubs, penile implants and hypnotic treatments for weight loss, according to an AP investigation.

Still, the worst is yet to come.

As the old pension plan's population ages in the coming years, the growing costs of long-term care are projected to create a volatile new liability that could cause deeper financial turmoil for some governments and likely trigger cuts in areas like active budgets for first responders. To cope, some local politicians are simply gambling their future budgets on the health of their retirees.

Hoquiam's case illustrates that challenge. The city money going to the medical coverage of former firefighters and police officers in just the so-called LEOFF-1 pension system totaled $1.2 million over the past couple of years, according to budget documents. By comparison, the entire active Fire Department budget of salaries, medical, supplies and equipment totaled about $1.8 million during the same period.

The medical expenses may cover just a few dozen pensioners, but it is contributing to major spending reductions in road repaving, parks staff and time spent maintaining the local cemetery.

"It's just a huge nightmare," said Brian Shay, the Hoquiam city administrator. "I'm sure it was a grand idea when it was put in place years ago, but it's just a killer now."

Hoquiam, however, has actually been lucky so far. None of the city's retirees are currently on long-term care, although the average age of the local pensioners is only about 69 years old and Shay fears the assisted-living bills are coming. Shay warned that those potential costs could cripple the city's finances and potentially force layoffs in an already depleted city staff.

There are signs that such a reckoning will soon arrive.

While financial analysts believe that general medical expenses in the LEOFF-1 system are nearing their plateau, state actuarial projections indicate that long-term care costs for local governments are going to rise 250 percent in the next 20 years to $37 million a year. That growth will put the total cost of medical care for that group of retirees to more than $120 million per year and contribute to a total long-term unfunded liability of $1.8 billion.

Officials expect that the largest expenses — related to retirees in convalescent homes or dealing with Alzheimer's — will be distributed in unpredictable and uneven ways.

That randomness is evident in the small city of McCleary, just west of Olympia, which has just two LEOFF-1 retirees and one of them who has in-home care. Taking care of that one person is costing McCleary about $90,000 a year — roughly $129 for every household in the city.

In Skamania County, an area in south-central Washington that includes Mount St. Helens, one of their eight pension beneficiaries is in long-term care, costing thousands of dollars extra each month.

Paul Pearce, who served as a Skamania County commissioner in recent years and is a friend of the ailing retiree, said the long-term care of that one person could last for another 20 years — potentially a $1.5 million liability for a county that has an annual general fund budget of just over $10 million. Pearce said the county explored long-term care insurance for each retiree but found it alarmingly expensive, so officials have decided to gamble on the health of local retirees and hope that the future care bills won't doom the area's finances.

"How do you plan for this long-term liability?" said Pearce, who is also a LEOFF-1 retiree. "Do we just roll the dice on a yearly basis?"

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