Contentious medical benefit program costing Franklin Co. +$1 million a year

Franklin County leaders say a big change has to be made to a bank-breaking employee benefit program, but they’ve decided not to pull the trigger just yet.

County Administrator Mike Gonzalez said the county has been running an unsustainable benefits conversion program that was giving some employees more cash in their pockets if they elected not to take county health insurance.

The system was designed that way as an incentive for hiring and retention in areas they can’t compete with larger Washington counties, but Gonzalez said they’re now paying out more than $1.1 million per year.

After two weeks of hearing from employees and other elected officials, county leaders decided to hold off, for the time being, in order to make sure they’re not pulling the rug out from under some employees.

As the county looks toward the next fiscal year, they are budgeting without the extra federal funds that were made available during the pandemic.

Who gets VEBA?

Because county employees span a wide range of professions, several different unions represent different offices. The county has a voluntary employee beneficiary association (VEBA) program that puts the full amount of what they would otherwise spend on health insurance into a medical trust account for the employees. Three of those employee groups have unions that negotiated agreements to allow a percent of VEBA funds to be paid out in cash.

Gonzalez said Franklin’s plan is unusual in that it applies the full amount rather than a fixed portion. Some counties give everyone $100 and others give employees who decline health insurance a few hundred dollars. Franklin County is applying an average of about $1,600. That leaves some employees taking an extra $800 per month home in cash.

Assessor Jon Rosenau has been advocating caution before making any major changes because it would impact his employees who are represented by AFSCME (The American Federation of State, County and Municipal Employees). He said they pay out about $22,000 per year total, which has helped his office remain competitive at a time when he has struggled to make adequate offers to potential new hires.

Earlier this year Rosenau went back and forth with county commissioners several times trying to bargain for approval for a slightly higher pay grade for a few potential employees. It’s a pattern seen often lately in the courthouse, as the county tries to trim back excess spending.

What typically happens is an elected official will have room in their budget due to unfilled vacancies, and ask for a highly qualified employee to be brought in at a pay-step that’s a bit higher than what they would typically see, in order to compete with the private sector or bigger counties.

Another area that would be impacted is certain jail staff, which are also in high demand across the state. That means Sheriff Jim Raymond is competing in an already tight labor market and would lose a bargaining chip that many employees feel is a key difference.

Any potential changes are not directed at, but would disproportionately impact, married employees who are on a spouse’s health insurance plan or veterans who have VA benefits for healthcare.

The ability to take the portion of the payment in cash may have been a deciding factor in whether to take a job in Franklin County over neighboring Benton where they’d only get $250 toward VEBA.

That’s a potential of up to $9,600 in cash and $6,600 toward their VEBA account. Many of the county’s employees use the cash to offset the cost difference of being on a spouse’s healthcare plan.

Raymond said not only would it hurt employee morale, but he believes those employees would just move back onto the county’s healthcare plan, leaving no real savings.

Gonzalez said this unusually high VEBA contribution has led to more than a dozen employees accruing $100,000 or more in their VEBA accounts, with some who have seen $200,000 to $300,000 sent into the account during their career. While those on family insurance plans through the county have nothing in VEBA.

Pushback on proposed changes

The county’s initial proposal was to give all employees a set $400 per month in VEBA, with those who don’t take insurance receiving an additional $200 monthly. If the percent of VEBA converted to cash continued for certain bargaining units, the $200 is about what they’d likely take home in cash.

That’s a nearly $12,000 total difference in annual VEBA contributions for those who don’t currently use the county’s health insurance.

Commissioner Brad Peck pushed back at the idea of making such a drastic change without a legal review at the previous meetings. He was not in attendance this week.

There was concern from Rosenau and other elected officials that this could be a significant loss of money for their employees. This week’s meeting was less heated, but Rosenau, Raymond and other elected officials continued to advocate for their employees.

At the previous meeting, the term socialism was thrown out by elected officials more than once to describe the idea of reducing VEBA payments to those not taking insurance and then giving everyone a smaller amount.

Most of the comments were directed at Commissioners Clint Didier and Rocky Mullen who have been pushing to shore up the program since they took office. They’ve pointed to it as an out of control expense at a time when the county is in danger of having to make hard choices about its budget.

“We’re never going to make 100% of the employees happy, it’s an impossibility, but how I try to approach it is to be empathetic and listen to everyone’s situation and try to figure out what’s the best way to fix what’s broken,” Gonzalez told the Herald.

He said that one alternative they could also look at is offering a smaller, flat rate for VEBA contributions for all employees and use the rest of the funds for a cost of living increase across the board, so that employees wouldn’t feel like money was being taken away. He said a 3% increase would cost the county about $600,000, which is about half of what they’re currently paying into VEBAs for those who opt out of health insurance.

Didier said that he plans to self-impose a term limit, so this change would impact the county’s budget long after he’s gone. He wants to make sure it’s addressed before then though.

Gonzalez said it’s a complex issue, and while the county can make the decision for non-bargaining employees, they can’t do that for those with union contracts.

So after listening to concerns from employees and elected officials over the past two weeks, Gonzalez recommended the county hold off on making any changes. He told the commissioners present it would be a good idea to start the discussions with the unions impacted when they are expected to be back for a bargaining update in November.

“I would like to bring in an expert to look at how we distribute VEBA for our employees. It gets quite complex when you’re dealing with unions on this issue,” Gonzalez said in a news release. “It’s different than how we work on benefits packages with non-union members. We need to be conscious that we have a process that’s working for all of our employees. Before we make any decision, we regret, I want to make sure all of our employees are taken care of.”

Gonzalez told commissioners he would reach out to a consulting firm to assess the feasibility of any potential changes.

“Change is coming, but (the commissioners) want to work out the fairest way to make those changes. The system is broken,” Gonzalez said. “I was really happy to see that they took a really measured approach, they took a really thoughtful approach to the process rather than just rip off the band-aid and say, ‘You get what you get, like it or leave it.’”

VEBA and elected officials

Any potential changes to VEBA benefits would also impact elected officials, who can opt to take the entire amount in cash.

The constitutionality of that decision is currently being looked into by the Attorney General’s Office after the county requested an opinion. That question was raised after Auditor Matt Beaton reviewed the conversion method and questioned whether it is a taxable fringe benefit or salary. The process has been characterized as Peck and the previous commissioners “giving themselves a raise.”

Gonzalez said they have not heard back on the status of that opinion, which was requested in July.

Didier and Mullen have been extremely critical of the decision, which was last updated days before they took office because changes to compensation for elected officials can only be done outside of their terms.

“I believe the system is broken. I want to bring equality to our employees. We’ve seen our elected officials reaping the rewards of the benefits at the taxpayers expense. Something needs to be fixed,” Didier said.

Beaton believes the county should not have converted the VEBA payments, and has questioned whether Peck should pay back nearly $47,000 in payments made since 2016. He also questioned about $20,000 in payments to former commissioners. Mullen and Didier elected to take insurance and only received about $300 after overpayments to health insurance.

Didier and Mullen have been especially critical of Commissioner Brad Peck taking the cash option. Peck is a retired naval officer, who has VA provided healthcare. Peck has pushed back at the characterization that he sought to benefit from the payments and has said the county needs to wait until a full legal review is done before making a decision.

In all, elected officials taking the cash conversion costs the county about $100,000 per year, Gonzalez said.

Any changes to how elected officials are compensated would need to be made before November 2024 when many terms end, unless otherwise told to do so by a potential finding from the AG’s office. The AG’s office would need to lay out a legal process for making that change within the term, unless it is explicitly determined to be unconstitutional.