The Little Deal That Could Be Big

A union trades retiree health care for a raise.
December 2005

Facing $1.3 billion in unfunded employee health care costs, Orange County, California, cut an unusual deal with some of its employees. The workers will pass up retirement health care benefits; the county will give them an immediate pay raise.

The agreement affects 1,200 workers who belong to a local union within the American Federation of State, County and Municipal Employees. The deal promises them a 2 percent pay increase over the next three years. Although they forgo county-paid retiree medical benefits, they will have access to coverage if they pay special premiums. Under the terms of the agreement, the county will introduce a new program to take effect in January 2007 that creates two health care pools--one for active employees and the other reserved for retirees.

For the county, the agreement brings savings of $2.87 million over the life of the contract.

What impact it will have on negotiations with unions representing more than 16,000 other county workers remains to be seen. But it could be a starting point. "We consider this the beginning of a pattern for our other unions," says Bill Campbell, chairman of the Orange County Board of Supervisors. "Each union will try to shape things consistently with what they want. It's a recognition by the unions that we have to change things, too."

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