Medical Center Health System took a step forward to settle pending litigation with a group of retirees who have battled the health system for more than a year to get their original healthcare benefits reinstated.
The mediated settlement agreement unanimously approved in a 6-0 vote Friday by the Ector County Hospital District board of trustees doesn’t reinstate their original benefits, but it shows improvement to their current situation with Health Reimbursement Accounts. District 7 board member Ben Quiroz was not present for the meeting Friday.
The ECHD board voted in October 2016 to kick about 380 retirees off the hospital insurance plan and created Health Reimbursement Accounts for them instead, citing an expected cost savings of $3.25 million in Fiscal Year 2017.
The group of retirees it affected worked for the hospital system before the Ector County Hospital District was created as a governmental entity in 1990. Employees hired after Jan. 1, 1993 never got the retiree health benefits.
As a county hospital, employees did not pay Medicare taxes and they paid into a state retirement fund instead of Social Security. Leaders of the hospital later worried employees hired before Jan. 1, 1993 might not be eligible for full Medicare benefits when they reached 65, so they decided to keep those retirees on the group plan.
When the board voted to replace their benefit plan with HRAs, retirees argued there wasn’t enough money in the account to cover secondary insurance policies and some couldn’t afford the $1,000 premium.
David Meisell, former MCHS HR director and a retiree who has helped spearhead the lawsuit, said the agreement presented Friday still has to be ironed out, but he is confident both parties can come to a reasonable agreement.
“The hospital needs a settlement. They need to be able to tell the bond analysts on the conference call within the next week that they have a contingent settlement in hand,” Meisell said.
“Retirees need a settlement because we have lived through a very stressful and strenuous year and a half. I can think of five retirees who have died during that time. That’s why we have a contingent settlement.”
The Fiscal Year 2017 audit was recently presented to the ECHD board and MCHS administration, during which an audit partner discussed concern over the hospital’s debt covenant compliance. The hospital is expected to be discussing their financial situation with bond rating agencies this month. That rating typically is determined by the end of March, Meisell said.
“They had to have a settlement that would bring good news to the bond rating (agencies) and we had to bring some stability to our retiree group,” he added.
MCHS President and CEO Rick Napper attributed the timeliness of the settlement to the board of trustees.
“The board of trustees made it a priority for me. They asked me about it during my interview process and how I would deal with the issue because there was obviously controversy over what this was and that they wanted to make sure that the retired employees of this organization were taken care of, but at the same time that we looked out for the fiduciary capabilities of the hospital,” Napper said.
The settlement, he said, basically allows that group of retirees to be able to be covered through the age of 65, at which point they will go on to Medicare. There are also fixed payment amounts for people over the age of 65 for those only on Medicare Plan A and for those on Medicare Plan A and Plan B.
“So today was actually a very positive time in the journey of Medical Center in that there’s been about a year of issues related to the retirement healthcare plan and on Monday we were able to reach an agreement that will be finalized. The board tonight was approving the ability to go forward with that final settlement,” Napper said.
District 5’s Don Hallmark who has been an advocate for retirees since he campaigned for his seat last year before winning a contentious election in May said the agreement address a lot of things they needed to address and does provide more money and more time for specific individuals.
“My personal opinion is that this could be a better compromise for a lot of these people than where they were,” Hallmark said.
While there was a significant difference in funding with the agreement presented Friday, MCH retiree Barry Hill said the agreement doesn’t include an index that will adjust to the cost of insurance 15 years from now, which will only rise.
“It’s year to year right now, so now at least they know that it will last until they reach 65,” Hill said, who has already turned 65 years old. “It’s just the amount they’re gonna be getting is not gonna carry them to 65.”
Meisell said the agreement would increase the compensation for the HRA funding for Medicare-eligible people from $1,080 to $2,500, which more readily addresses the expenses for their Medicare supplements and drug supplements. But like Hill, Meisell was concerned in the fixed amount of dollars.
“The problem is, these are flat amounts,” Meisell said. “And medical inflation, as most people know, is dramatic. This does not address medical inflation and that’s a problem, but we had to agree to it.”
Meisell said he hopes as the hospital’s finances improve, the issue would be re-addressed in the future to help solve that problem. He also said they needed a better HRA card because there had been significant problems with claim reimbursement.
While “somethin’s better than nothing,’” Hill said he still doesn’t think what was done was right.
“And honestly the hospital could have put just a little bit of effort tin and created a group and put the (retirees) in that group. They could’ve gone out to some insurance company and created a group and put the people in that group and funded it for probably what they’re paying now and everybody would be covered and not have to go through what they are,” he said.
Hill’s daughter, District 1 board member Bryn Dodd said she is happy there is an agreement in place, and she will support it, but it’s hard to compare this to what they had before. Both Dodd and District 2 board member Mary Lou Anderson had family members who were affected by the board’s decision in 2016.
Dodd said Friday, her father and Anderson’s sister both withdrew themselves from the lawsuit so there would be no conflict of interest when voting on the litigation. Dodd’s eyes started to well with tears Friday as she talked about the impact it has had on the group of retirees.
“(To some people) they’re numbers. They’re squiggly lines on a graph. But to me, they’re faces and they’re names and they’re stories and they’re people. And so I take it very personally,” she said.
“You know, my dad plays a part in that, but there’s so many other people that I don’t just see my dad’s face, I see all 300 of these people that I’ve met and talked to. So I do take it very personally and I do become emotional with I and I think that that’s what makes me a good board member is that I’m doing what’s right and I lead with my heart.”
The Contingent Mediated Settlement Agreement included the following listed material terms that the board approved Friday.
1. The parties will negotiate a comprehensive Settlement Agreement.
2. The agreement is contingent upon execution by all designated representatives for plaintiff/retiree group and 90 percent of all additional plaintiffs.
3. Settling plaintiffs will dismiss the pending appeal.
4. The agreement will be subject to a fiduciary-out/material change provision, the specific language to be negotiated.
5. The parties agree to HRA funding in the following defined contributions:
- Under age 51
, 15 years
- Between ages 51 and 52, 14 years
- Between ages 52 and 53, 13 years
- Between ages 53 and 54, 12 years
- Between ages 54 and 55, 11 years
- Age 55 and over, 10 years
- Under age 65, $12,500/year
- Over 65 Medicare A only, $3,600/year
- Over 65 Medicare A and B, $2,500/year
6. The defined contribution for plaintiffs/retirees will not exceed those for active employees.
7. The HRA will be subject to a one-year rollover with a provision Last-In, First-Out.
8. Effective plan start date January 1, 2019.
9. ECHD will pay attorney fees of $160,000.