The High Cost of PSEBA Expansion

Transcription

1 The High Cost of PSEBA Expansion April 2011 Illinois Municipal League PO Box 5180, Springfield, IL

2 TABLE OF CONTENTS I. New Economic Reality Requires Reform...2 II. What is PSEBA...2 III. The Courts and PSEBA Expansion...2 A. What is Catastrophic Injury?...2 B. What Constitutes an Emergency?...3 IV. The Result of the Courts Expansive PSEBA Interpretations...4 V. Budgetary Impact of PSEBA...4 A. PSEBA Cost and Participation (Table)...5 B. Growth of PSEBA Costs (Graph)...6 VI. Projected Growth in PSEBA Costs...6 Estimated Total PSEBA Costs (Graph)...7 VII. Recommendations for Reform...7 Illinois Municipal League The High Cost of PSEBA Expansion April

3 THE CASE FOR PSEBA REFORM I. NEW ECONOMIC REALITY REQUIRES REFORM An historic economic downturn has created a new economic reality for all levels of government. High unemployment and declining tax revenues have imposed serious pressures on local government budgets. Experts warn that it could be years before the economy strengthens sufficiently to reduce unemployment and restore consistent economic growth. Local governments have responded to the new economic reality by making difficult decisions regarding the allocation of scarce financial resources across multiple community needs. This entails realigning municipal operations to reflect a future of reduced revenues. Municipal leaders have sought to reduce expenditures while maintaining current service levels for the public. Further changes are needed to reduce costs. The vast majority of municipal costs are associated with personnel. Pursuing fair and sensible personnel cost reforms that have minimal impact on the broader community are a critical objective of municipal governments struggling to exist within the new economy. One obvious reform concerns the need to address the growing expense and continued expansion of the Public Safety Employee Benefits Act (PSEBA). II. WHAT IS PSEBA? The Public Safety Employee Benefit Act (PSEBA) was enacted in 1997 to provide lifetime health insurance coverage for first responders, along with their spouses and children, when the first responders are killed or catastrophically injured while responding to an emergency. The cost is paid entirely by local governments and their taxpayers. The intent of the law was to provide health insurance coverage when the employees injuries are severe enough to preclude any hope of future gainful employment and the affordable health care associated with employment. This is a dutiful and responsible purpose. Unfortunately, PSEBA has expanded from an important safety net to something far more than originally intended. III. THE COURTS AND PSEBA EXPANSION PSEBA was initially supposed to provide municipally-funded health insurance to first responders suffering from injuries such as paralysis, limb amputation, or severe and crippling injuries that made future employment impossible. The result of a court-imposed standard for PSEBA benefits, along with a myriad of appellate court decisions, has been the expansion of a costly, lifetime health insurance benefit for injuries such as a bad knee, a partially-amputated finger, general back pain, or a shoulder impingement. And the taxpayers are footing the bill even though many of the recipients of the municipally-funded health insurance benefit are currently employed and have access to health insurance with their new employer. A. What is a Catastrophic Injury? The underlying problem with the Illinois PSEBA law is the absence of a definition of catastrophic injury. The lack of a clear and reasonable injury standard initially defaulted the issue into the courts and prompted a 2003 Illinois State Supreme Court decision to extend PSEBA benefits to all first responders injured in the line-of-duty while responding to an emergency. Note that these same first responders are eligible for a 65% line-of-duty disability benefit under the Illinois Pension Code. The very first factor to look at where PSEBA benefits are claimed is whether the employee was killed or catastrophically injured. The question of whether the employee was killed is fairly open-and-shut, and the Illinois Municipal League The High Cost of PSEBA Expansion April

4 courts have scant wiggle room there. But that is not the case when the question concerns whether the employee suffered a catastrophic injury. Until 2003, the term catastrophic injury was popularly understood to mean an injury that is short of death, yet disastrous (or catastrophic) in nature. 1 In short, a catastrophic injury was a debilitating injury that would prevent an individual from performing routine daily functions or, at least, acquiring gainful employment. For example, one insurance company gave the following examples of injuries covered under its Catastrophic Injury Program at that time: Spinal cord injury Severe head/neck trauma Partial or complete paralysis Injuries resulting in severely diminished mental capacity or other neurological injuries that result in the inability to perform daily functions Irrecoverable loss of speech or hearing (both ears) or sight (both eyes) or both arms or both legs or one arm and one leg. 2 In 2003, the Illinois Supreme Court ruled that a catastrophic injury need not be actually catastrophic. In the case of Krohe v. City of Bloomington, 3 the court expanded the definition of catastrophic injury to include any injury where a line-of-duty disability is awarded regardless of the scope of that injury. According to the Supreme Court, because of a single statement made by the sponsor of the bill during the floor debate to override the Governor s veto, the term catastrophic injury is synonymous with a line of duty disability pension. Under the Pension Code, a line-of-duty disability does not mean that the employee is disabled to the point where he or she cannot work. It simply means that the employee cannot continue to work as an officer or firefighter. 4 In effect, the Illinois Supreme Court left the phrase as a result of catastrophic injury in PSEBA meaningless, and therefore, any analysis on the first criteria ends with line-of-duty disability. B. What Constitutes an Emergency? A very broad definition of catastrophic injury by the Illinois State Supreme Court was followed by other decisions that expanded PSEBA eligibility. These subsequent expansions were based upon another ambiguous reference within the Act. In this case, the meaning of the word emergency. PSEBA provides health insurance benefits if the employee is killed or catastrophically injured while responding to what is reasonably believed to be an emergency. The definition of emergency, however, is apparently open to debate. In two separate cases, the First District Appellate Court in Illinois recently examined the phrase reasonably believed to be an emergency. Interestingly, the two opinions issued by the same court within less than a month of each other concerned the exact same fire department and the exact same set of relevant facts. But the exact same court issued exactly opposite rulings in each case. In Gaffney v Orland Fire Protection District, 5 the Appellate Court rules that, even though the plaintiff (a fulltime firefighter) was entitled to a line-of-duty disability pension for his catastrophic (shoulder) injury, he was not entitled to receive the continued health insurance benefits for his family because he did not believe that he was responding to an actually emergency when he was injured. 1 Villareal v. Village of Schaumburg, 325 Ill. App. 3d 1157, 1164 (1st Dist. 2001). 2 Catastrophic Injury Insurance Program, Underwritten by the Mutual of Omaha Insurance Company, Updated July 22, Krohe v. City of Bloomington, 204 Ill.2d 392 (2003) ILCS 5/ ; 40 ILCS 5/ Gaffney v. Orland Fire Protection District No (slip op.) (1st Dist. Dec. 24, 2009). Illinois Municipal League The High Cost of PSEBA Expansion April

5 In the case of Lemmenes v Orland Fire Protection District, 6 the Appellate Court held the complete opposite. The plaintiff (a Lieutenant) was involved in a training exercise when he hurt his knee, which resulted in a line-of-duty disability pension. In this case, however, the Appellate Court concluded that, while the training exercise was simulated, the firefighter nonetheless reasonably believed that he was responding to an emergency, as that term is ordinarily defined, because the term is broad enough to encompass simulated urgent situations designed to train the plaintiff or equip him with new skills. In addition, as a lieutenant, he would have been disciplined if he refused to participate in the exercise. IV. THE RESULT OF THE COURTS EXPANSIVE PSEBA INTERPRETATIONS The courts have responded to the lack of definitional clarity within the PSEBA law by providing employees with an easier threshold to claim an expensive health insurance benefit. A disability pension is 65% of salary and, with PSEBA, includes taxpayer-funded health insurance for life. In comparison, a police officer or firefighter who works for 30 years is entitled to a pension of 75% of salary, 7 but he or she must continue to pay their own health insurance premiums. 8 With the courts broad definition of catastrophic injury, a former public safety employee receiving a line-of-duty disability can continue to receive free health insurance even if he or she acquires full-time employment elsewhere. And this is unfortunately a common occurrence. To add to this problem is the relatively low standard that employees must meet to receive a line-of-duty disability pension. For example, an appellate court recently ruled that a police officer was entitled to a lineof-duty disability pension due to a back injury despite the fact that he had a pre-existing condition and that other factors contributed to his condition. 9 Appellate courts have been more than willing to overrule the fact findings of pension boards and trial courts when it comes to disability findings. 10 This leads to a situation where disability pensions and PSEBA benefits may be awarded for routine, common injuries that could be incurred by any local government employee or citizen without facing the extremely hazardous conditions for which these benefits were envisioned. When this happens, the taxpayers are faced with the burden of paying for extremely expensive benefits for otherwise healthy and physically-able former employees. V. BUDGETARY IMPACT OF PSEBA The IML received survey responses from 50 municipalities with ongoing PSEBA costs. The survey collected data between the years 2003 (the year of the Krohe decision that first expanded the benefit) and 2010 (the most recently completed fiscal year). Survey respondents indicated that there are 172 individuals in receipt of PSEBA benefits among just those 50 municipalities that participated in the survey. The IML intends to continue gathering data to grow the number of municipalities that participate in the survey. 6 Lemmenes v. Orland Fire Protection District, No (slip op.) (1st Dist. Jan. 19, 2010) ILCS 5/3-111; 40 ILCS 5/ ILCS 5/367f; 215 ILCS 5/367g. 9 Devaney v. Board of Trustees of the Calumet City Police Pension Fund, No (slip op.) (1st Dist. 2010). 10 See e.g., Williams v. Board of Trustees of the Morton Grove Firefighters Pension Fund, (Slip opinion) No (1st Dist. Feb. 2, 2010); Cole v. Retirement Board of the Policemen s Annuity and Benefit Fund of the City of Chicago, No (slip op.) (1st Dist. Nov. 30, 2009); and Peacock v. Board of Trustees of the Police Pension Fund, No (slip op.) (1st Dist. Oct. 20, 2009). Illinois Municipal League The High Cost of PSEBA Expansion April

6 A. PSEBA Cost and Participation (Table) The following table provides the total PSEBA costs accumulated between 2003 and 2010 as well as the cumulative number of recipients in receipt of an award as of These numbers reflect the experience of 50 communities that responded to an IML survey: PSEBA COST AND PARTICIPATION MUNICIPALITY AMOUNT ( ) PARTICIPANTS (2010) POLICE ( ) FIRE ( ) ALTON $ 426, $ 104, $ 321, BATAVIA $ 286, $ 193, $ 92, BELLEVILLE $ 958, $ 415, $ 542, BELVIDERE $ 146, $ 82, $ 63, BLOOMINGTON $ 292, $ 138, $ 154, BRIDGEVIEW $ 96, $ 6, $ 90, BUFFALO GROVE $ 163, $ 81, $ 81, BURR RIDGE $ 72, $ 72, CHARLESTON $ 277, $ 161, $ 115, DANVILLE $ 454, $ 292, $ 162, DECATUR $ 216, $ 23, $ 193, DIXON $ 40, $ 40, EVANSTON $ 991, $ 332, $ 658, FLORA $ 4, $ 4, FOREST PARK $ 84, $ 71, $ 13, GLENCOE $ 150, $ - $ 150, GLENDALE HEIGHTS $ 463, $ 463, GURNEE $ 136, $ 72, $ 63, HAZEL CREST $ 125, $ 125, HOFFMAN ESTATES $ 571, $ 271, $ 299, HOMEWOOD $ 176, $ 176, LAKE BLUFF $ 11, $ 11, LOMBARD $ 313, $ 100, $ 212, LYNWOOD $ 44, $ 44, MASCOUTAH $ 25, $ 25, MATTOON $ 368, $ 194, $ 173, MONTGOMERY $ 7, $ 7, MONTICELLO $ 78, $ 78, MOUNT PROSPECT $ 654, $ 503, $ 150, MUNDELEIN $ 130, $ - $ 130, NAPERVILLE $ 138, $ 35, $ 103, NORTH CHICAGO $ 40, $ 40, NORTHFIELD $ 80, $ 80, O'FALLON $ 174, $ 174, ORLAND HILLS $ 143, $ 143, ORLAND PARK $ 77, $ 77, PALATINE $ 35, $ 35, PEORIA $ 1,190, $ 600, $ 590, QUINCY $ 161, $ 161, ROCK ISLAND $ 91, $ 91, ROLLING MEADOWS $ 39, $ 39, SCHAUMBURG $ 761, $ 343, $ 417, SCHILLER PARK $ 94, $ 94, SHILOH $ 2, $ 2, SKOKIE $ 90, $ 5, $ 84, SOUTH ELGIN $ 81, $ 81, STICKNEY $ 213, $ 213, STREAMWOOD $ 211, $ - $ 211, SWANSEA $ 3, $ 3, SYCAMORE $ 123, $ 123, TOTAL $ 11,522, $ 6,024, $ 5,498, Illinois Municipal League The High Cost of PSEBA Expansion April

7 B. Growth of PSEBA Costs (Graph) The following graph illustrates the total cost growth among the 50 survey respondents for combined police and firefighter PSEBA awards between the years 2003 and During the seven year period, the annual cost grew from $358,094 in 2003 to $2,783,812 by 2010 an increase of 677%. The cumulative liability for the survey respondents over the seven year period was $11,522,638. VI. PROJECTED GROWTH IN PSEBA COSTS The potential exists for significant growth in the cost burden for PSEBA benefits if costs are not curbed through sensible reforms. The cost of health care can be volatile, but historical trends suggest that the cost almost always increases and rarely, if ever, abates. The following graph uses the average annual historical growth rate of 35% between 2003 and 2010 to project the growth of overall PSEBA costs through Based upon this methodology, the aggregate cost among the 50 municipalities in the survey would grow from $2.8 million in 2010 to $60.3 million by This is an exponential cost growth of 2068% over a ten year period. It should be noted that health insurance costs can be volatile and difficult to predict. Illinois Municipal League The High Cost of PSEBA Expansion April

8 VII. RECOMMENDATION FOR REFORM The available data reveals great cause for concern. In addition to coping with rising pension costs in future years, municipal governments must brace for the financial impact of drastic increases in the cost obligations associated with the provision of municipally-funded health insurance premiums to those employees eligible for PSEBA. The high cost of the benefit necessitates that a reasonable, clear, and equitable standard be adopted to ensure that the lifetime health insurance benefit is only being paid to those whose injuries are truly catastrophic in nature. The IML requests that the Illinois General Assembly approve SB 2014 to provide a clear and reasonable standard for what is considered a catastrophic injury. The IML is seeking to make Illinois law consistent with federal law by making the receipt of PSEBA benefits contingent upon eligibility for a benefit under the federal Public Safety Officers Benefits Act (PSOB). The PSOB provides a one-time financial benefit to police officers and firefighters that are killed or catastrophically injured while performing their duties. Eligible employees (or their families in the event of death) are entitled to a one-time benefit of $318, This benefit is paid by the federal government and indexed to inflation. SB 2014 would amend the Illinois PSEBA law to require that an employee seeking the lifetime municipallyfunded health insurance benefit must first be awarded a benefit under the federal PSOB law. The federal PSOB law has been paying disability benefits for catastrophic injuries sustained by federal, state, and local law enforcement officers, firefighters, and members of public rescue squads since November 29, The federal law also has an existing process and a clear and sensible definition of catastrophic injury for determining benefit eligibility. Linking the award of PSEBA benefits with the sensible and already existing federal PSOB eligibility process will ensure that municipally-funded health insurance is available to former first responders that are unable to pursue gainful employment because of the severity of their injuries. The new standard will also ensure that municipal governments and their taxpayers are not paying the high cost to provide municipally-funded health insurance coverage to former employees who are working in other careers and have access to health insurance through other means. Illinois Municipal League The High Cost of PSEBA Expansion April