Most future state and municipal retirees will have to pay about $1,000 a year more for health care under an ambitious proposal that Governor Deval Patrick plans to unveil Friday in an effort to save up to $20 billion in health care costs over the next three decades.
Under the plan, most public employees will have to work until age 60, not 55, before they become eligible for health care benefits and will have to accrue 20 years of state or local service, up from the current 10.
The proposal marks another attempt by Patrick, a liberal Democrat, to negotiate reduced benefits from public employees in a heavily Democratic, labor-friendly state that has long protected such benefits amid an outcry from taxpayer groups.
Patrick is casting the changes as the next step needed to rein in unsustainable government costs, following his enactment in recent years of changes to municipal health insurance policies and state pensions.
The governor argues that state and local governments cannot support the $40 billion they face in long-term health care costs for their retirees, and that public employees must work longer for those benefits and pay more for them if the system is to be placed on firmer financial ground.
Unions and retirees have traditionally resisted any curtailment in retirement benefits, making past attempts to overhaul the system politically treacherous. But the governor’s proposal is based on changes that labor and retiree groups developed on a commission with state and local officials over the last several months.
Three ranking Democratic and Republican state legislators also sat on the governor’s commission and support the changes, making it more likely the bill will win the support of top House and Senate leaders.
City and town managers have raised serious concerns about the bill, saying it contains one flawed provision that could prevent local managers from cutting retiree health costs in the short term.
Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a business-backed budget watchdog group, called the governor’s plan “a good first step.”
“It is a real reform,” Widmer said. “We don’t necessarily agree with everything but, as a general matter, these are positive recommendations that reflect the enormous liability that the state and municipalities face for retiree health care that they can’t pay for.”
Currently, most state and local workers pay 20 percent of their premiums if they have worked for 10 years on the job. Under the governor’s plan, they will have to pay 50 percent of their premiums if they retire after 20 years of service. Only after 30 years of service will the government pick up 80 percent of their premiums, leaving them with 20 percent of the cost.
Patrick estimates that, over the next 30 years, his legislation will save the state $6 billion to $8 billion, while cities and towns will save $9 billion to $12 billion. Most of the savings, however, will not begin to accrue for at least a decade.
The changes will not apply to current retirees or to current employees who are within five years of retirement and have 20 years of service.
The governor’s bill was designed by a 12-member commission that has been meeting since May. The panel determined that Massachusetts bears some of the highest costs for retiree health care of any state and that public retirees receive more generous benefits than 90 percent of retirees in the private sector.
Andrew Powell, a member of the American Federation of Teachers, was the AFL-CIO’s representative of the panel.
He said labor fully supports the bill because unions recognize that the long-term costs of health care need to be reined in to preserve benefits for future retirees.
“We wanted to be part of the solution,” Powell said. “And it was a true joint solution.”
Labor’s support, he acknowledged, “does change some of the politics around this.”
The commission voted 11 to 1 to support the recommendations that form the core of the governor’s bill. The lone dissenting vote was from the Massachusetts Municipal Association, which represents city and town managers.
Geoff Beckwith, the association’s executive director, said that while his group supports many of the governor’s proposals, it is opposed to a provision that would forbid municipal managers from changing the share of the premiums their retirees pay through 2016.
That three-year freeze was included in the bill to help win labor’s backing. But Beckwith said that because most of the savings in the bill will take years to add up, that freeze will make it hard for cities and towns to save money in the near term.
“While the legislation contains many good elements, it would take away one of the important tools cities and towns have today to control retiree health costs over the next decade,” Beckwith said.
State Treasurer Steve Grossman said the bill would save tens of millions of dollars in annual borrowing costs. “This is exactly what the investor community wants to hear,” he said. “It’s another element in a series of reforms that have been acheieved in the last several years.”