States Unsure of How to Fund OPEB Liabilities

July 15, 2009 ( - States have unfunded liabilities for retiree health care of about $558 billion, according to a report from the Center for State and Local Government Excellence.

Among the states whose actuarial reports the project examined, North Dakota ($31 million), Wyoming ($72 million), Iowa ($0.2 billion), Oregon ($0.3 billion), Rhode Island ($0.5 billion), and Oklahoma ($0.8 billion) have the lowest reported unfunded liabilities. New Jersey ($68.8 billion), New York ($49.7 billion), California ($47.9 billion), North Carolina ($23.8 billion) Connecticut ($21.7 billion), Louisiana ($19.6 billion), and Texas ($17.7 billion) have the highest.

The report, “At a Crossroads: The Financing and Future of Health Benefits for State and Local Government Retirees,” says the substantial variation in unfunded liabilities is a function of the state workforce, the generosity of the retiree health plan, and the portion of the total cost of the program paid for by the state.

The report suggests that states do not yet have a clear sense of how they are likely to try to finance their unfunded other post-employment benefit (OPEB) liabilities. Most use a pay-as-you-go method for funding. Of the pre-funding methods suggested, the highest percentage of states (28%) said they are likely to adopt a governmental trust (Section 115 plan).

Sixty percent of states said they are very unlikely to borrow from the state’s pension plan.

States are currently using cost containment approaches including hospital inpatient pre-certification (80%) and disease management programs (84%), and many have turned to cost sharing. Two-thirds have increased retiree premium amounts (66%) and dependent premium amounts (68%). Half have increased retiree deductible amounts (46%) and family deductible amounts (50%). Two-thirds have also increased co-payment amounts on prescription drugs.

According to the report, most states still see themselves as unlikely to undertake drastic action to curtail or eliminate retiree health care benefits, but 34% indicated they intend to introduce plans to limit retiree health care subsidies. Three states said they are “somewhat likely” to terminate the health care benefits of current retirees altogether.

The full report can be found here .