Governments Scramble to Meet GASB 45 Dictates

September 18, 2008 ( - A new study by two academic researchers found that nearly all 50 states have reacted to demands by demonstrating how they will provide retiree health care by creating statewide health coverage pools.

A news release said the study,After GASB 45: Solving the Unfunded Liability Problem in Retiree Health ,examines the alternatives state and local governments are exploring, including cost containment, cost sharing, efficiencies, future cost shedding, pre-funding mechanisms, selling assets, and wellness and preventive illness programs.

The efforts are part of the governments’ compliance with theGASB 45 accounting standard that requires public employers to produce an actuarial statement, using generally accepted accounting standards, that presents the projected actuarial accrued liabilities and the annual required contributions for retiree health plans (See GASB Issues Proposal on Required Contributions for OPEBs ).

Researchers Richard C. Kearney, director of the School of Public and International Affairs, North Carolina State University, and Robert L. Clark, a professor of economics and of management, innovation, and entrepreneurship in the College of Management, North Carolina State University, found that many state plans include teachers and provide a local option for local governments and special districts to participate. The state pools provide uniform benefit levels for the active workforce and to all retirees residing in the state, according to the study.

As part of their efforts to rein in retiree health expenses, the study found that in the last five years, 10% of states have established a plan that limits the state subsidy for future retirees; 34% say they are likely to introduce such a plan in the next five years.

Meanwhile, according to the study, most states have implemented a variety of cost containment programs. Some 84% have a disease management program and 80% require hospital inpatient precertification.

The most popular preventive medicine programs in states are: coverage for a retiree’s annual physical exam (72%); smoking cessation (70%); and wellness newsletters or Web sites (66%).

Kearney and Clark warned that officials could end up hurting themselves by cutting too far too fast. “In gaining control of future retiree health care costs, employers must be careful not to enact such Draconian benefit reductions that their ability to attract and retain desirable workers suffers,” the researchers asserted. “And they should understand that retraction or significant reduction of current retiree benefits will provoke strong negative reactions and claims that the government employer is acting immorally and possibly illegally by breaking a contract. Future retirees are owed less fealty by employers and unions and are better positioned to make necessary financial adjustments to contend with reduced future benefits.”

The study is available here .