Benefits December 2, 2008

States not Weighing in with OPEB Grand Plans

December 2, 2008 (PLANSPONSOR.com) - A new survey suggests most states intend to keep financing retiree health care on a pay-as-you-go basis over the next five years, with 30% planning partial funding to offset costs.
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A news release from the Washington, D.C.-based New Center for State and Local Government Excellence about its survey of all 50 states said five report they have established a retiree health care trust and 15 others say they are likely to adopt a trust.

All states said they are making incremental retiree health changes, focusing primarily on disease prevention, cost containment, and cost sharing strategies, according to the announcement about the Retiree Health Care in the American States report .

“Our findings suggest widespread recognition among state administrators of the importance of retiree health care to HR goals,” the report asserted. “These officials are also aware of OPEB (Other Post Employment Benefits) liabilities, but they report that little has been achieved in the way of comprehensive strategies to deal with them. Relatively few states have adopted advance funding for OPEB liabilities and virtually none report a likelihood of taking unpopular action (e.g., raising taxes, shifting funds from programmatic areas to fund OPEB costs) to address their OPEB liabilities.”

On the cost side, according to the report:

  • 17 states expect to introduce a plan to limit health care subsidies for future retirees; three states say it is likely they will terminate subsidies for current retirees.
  • A large majority of states have introduced disease management programs, have pre-certification procedures in place for inpatient hospitalizations, and conduct claims payer audits.
  • Sixteen states say they are likely to increase the years of service required for vesting in retiree health care programs.

The bottom line, according to the study, is that state officials still have a host of difficult decisions to make in years to come.

“When considered alongside other recent changes affecting public service-such as shifting pension risks to employees through defined contribution plans, scaling back or eliminating employee grievance rights, and eliminating job security-cutting government OPEB could exacerbate existing HR difficulties,” the study said. “Such prospects only underscore the importance of understanding the implications of proposed actions so that difficult, yet informed, choices can be made.”

The report is available here .

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