AUGUSTA — State budget projections show that 600 to 700 state workers and 1,000 teachers will likely retire before Jan. 1, 2012, because of health insurance changes called for in Gov. Paul LePage’s budget.

Under his plan, state workers and teachers who retire after Jan. 1 would have to pay for their coverage until they turn 65.

The proposed changes are projected to save the state $11.4 million over the next two years, said Department of Administrative and Financial Services Commissioner Sawin Millett.

But the changes would actually cost the state $2 million on the teacher side, he said. That’s because so many teachers are expected to retire — more than double the number compared to a typical year — that they will begin drawing health benefits earlier than originally projected.

“All of these programs, retirement and health insurance, are designed to save money to help us get to balance and to address the priorities Gov. LePage wanted to address,” Millett said.

Millett said the state is open to considering alternatives that may allow some people to retire and come back to state service so they can continue health coverage.

“There is a risk of losing a lot of institutional knowledge and a lot of key people exiting early because of the loss of health insurance coverage,” he said.

Changes to state pension and health benefits are key elements of LePage’s two-year, $6.1 billion budget. State workers and teachers would also be forced to contribute an additional 2 percent of their pay into the retirement system, and cost of living increases for current retirees would be frozen for three years.

But it’s the raising of the retirement age for state-covered health insurance that is “most egregious” for current state workers and teachers, said Mary Anne Turowski, a lobbyist for the Maine State Employees Association.

“It’s rocked people’s worlds,” she said. “You plan for retirement and now you have to change course.”

That’s because a single person covered by the system would have to pay $727 a month to continue his coverage until he reaches 65 and can go on Medicare, according to the Employees’ Health Insurance Program.

During testimony before lawmakers earlier this month, Mary Saunders of Augusta, a cataloger at the Maine State Library, said she could not afford to pay for the health insurance. But she’s also not ready to retire.

“It is one thing to make changes affecting those who are 10 years or so from retirement,” she told lawmakers. “They have time to redo their financial plans and make a course correction. I do not.”

In an interview, Saunders said she considers herself more fortunate than other state workers. With 39 years of service and at age 61, she is eligible to retire.

Others might be just shy of meeting the requirements, which limits their options, she said.

Turowski gave another example.

She said people close to retirement may have wanted to work for an additional year to pay for a child’s college education.

But if they do, and then retire before they are 65, they face paying more than $8,000 a year out-of-pocket for health coverage.

“I think our members are quite appalled,” she said. “It’s a broken promise.”

As it is now, the state pays 100 percent of the coverage for state workers who reach normal retirement age — 60 or 62, depending on when they started with the state — and have worked for the state for at least 25 years.

It’s a little different for teachers, for whom the state pays only 45 percent of the health coverage before age 65. Teachers can retire at 62.

Teachers in some school districts have already handed in their retirement notices based on the proposal, even though it could be changed by lawmakers, those who testified said. Since they are required to give several months notice, they need to give districts a heads-up of their plans right away, said Steve Crouse, a lobbyist with the Maine Education Association.

Some superintendents have eased the deadline, knowing that people are making life decisions based on a legislative proposal, Crouse said.

“It causes teachers who want to stay another year or two to exit early,” he said. “Then, it becomes a disincentive.”

And, once the January deadline has passed, it will force some teachers who should retire at 62 to hang on an additional three years, he said.

“The point from the public perspective is, it is just bad policy to make people stay in classrooms beyond normal retirement age,” he said.

Millett said he would consider creating some sort of “return-to-work option” or developing a tiered system that would help those closest to 65 the most and step down from there.

“This is not aimed at demonizing any population in state government,” he said. “Our design is to make the difficult choices that better position the state for affording its program services in the long term and reducing our debt in ways that will create more private sector jobs. It all ties together.”

MaineToday Media State House Writer Susan Cover can be contacted at 620-7015 or at:

scover@centralmaine.com