Biden-Harris Inflation Reduction Act Busts City of San Angelo's Budget

SAN ANGELO, TX — The Inflation Reduction Act, passed by a Democrat-controlled Senate and House in 2022 and signed by President Joe Biden, has strained the City of San Angelo's budget for retiree health insurance. No Republicans voted for the bill in either chamber of Congress. The legislation, with a price tag of $891 billion, aimed to reduce the federal deficit, lower prescription drug prices, and invest in domestic energy production while promoting clean energy. The act was expected to reduce the deficit by raising $738 billion through tax reform and reducing Medicaid and Medicare spending via prescription drug reforms. It also authorized the IRS to hire 87,000 new agents to collect taxes.

The Act’s prescription drug pricing reforms have unexpectedly driven up the cost of the city's Medicare Advantage insurance premiums for retirees who left city service before 2000. San Angelo leaders were surprised by a 62.9% increase in premiums, costing the city nearly $375,000 more annually to subsidize the benefit. For taxpayers, this increase equates to the revenue generated by a 1/2-cent property tax hike.

Retirees who left city employment before 2000 were promised fully paid or heavily subsidized Medicare Advantage (MA) coverage, with a revision in 2009. Currently, these retirees pay $24.50 per month for coverage that eliminates co-pays and deductibles for doctor visits and healthcare, along with low co-pays for prescription drugs. This coverage supplements traditional Medicare.

City Human Resources Director Bryan Kendrick said the city requested bids for the MA program for 2025. Two of three providers responded, with Blue Cross Blue Shield declining to offer a quote. The current provider, UnitedHealthcare, submitted a bid 62.9% higher than this year's cost, while Aetna's quote was 97.49% higher.

According to the Heritage Foundation, provisions in the Inflation Reduction Act related to lowering Medicare Part D prescription drug costs have disrupted the insurance market. The Act subsidizes Part D prescription drugs through January 2025, after which the government and pharmaceutical companies will negotiate lower drug prices. The sudden change has left city retirees and the San Angelo City Council grappling with the financial impact.

At a council meeting on Oct. 1, city leaders discussed three options: covering the increase by reallocating funds, splitting the cost with retirees by raising their monthly contributions, or passing the full cost to retirees. The latter option would raise retirees' premiums from $24.50 to about $125 per month.

Around 40 retirees attended the meeting, including many former police officers led by retired Police Chief Russell Smith, who urged the council to honor its promise to retirees. Former Municipal Judge Alan Gilbert also argued for the city to absorb the increased costs, noting that some retirees live on about $1,000 per month and would struggle to afford higher premiums.

The council directed city staff to review the options and present recommendations at the next meeting on Oct. 15 or Oct. 29. Time is critical, as open enrollment for Medicare Advantage begins on Oct. 15.