PERI Closely Following OPERS Proposed Changes to Health Care

OPERS and PERI Board Discuss Health Care Funding Issues
January 25, 2019

PERI Closely Following OPERS Proposed Changes to Health Care

(July 12, 2019)  Since January, the OPERS board and staff have been meeting monthly to discuss the state of the Health Care Fund and what steps may be needed to extend its solvency.  While there are many factors contributing to the current solvency crisis, two in particular illustrate the need for action if OPERS is to continue to provide meaningful health care benefits for retirees.  First, the formula agreed to in 2013 to ensure long-term funding was to include both investment returns and the dedication of a portion of the employer pension contribution (up to 4% of the 14%) directed to members’ accounts.  Second, the cost of coverage for pre-Medicare retirees has been escalating at a pace over the past decade that is clearly unsustainable.  Here is a sobering statistic – pre-Medicare retirees make up 20% of the entire OPERS retiree population yet they consume 60% of the total annual health care spend – and that percentage is increasing.

Let’s discuss both of these issues.  In 2013, major changes were made to pension plan design in an effort to increase its funded status.  OPERS also took the opportunity to review the status of the Health Care Fund in order to ensure its long term stability while they were making changes to pension eligibility.  It made sense to align the future stability of both funds at the same time.

Beginning in 2016, part of the plan to ensure solvency was to direct 4% of the employer contribution to the Health Care Fund.  When combined with an anticipated annual rate of return of 6.5% on the Health Care Fund’s investments, it appeared there would never be a need to revisit the issue of the fund’s solvency again.  Unfortunately, the OPERS board never directed more than 2% of the employer contribution to the fund and in fact, has not made any contribution over the past two years, choosing instead to direct the full 14% to the Pension Fund.

The decision to direct the full employer contribution to pension is based on their statutory responsibility to protect the pension fund.  There is no such legal requirement or mandate for health care.  Less than ideal investment returns in several of the years following the 2013 plan design changes prompted this decision.  The Pension Fund, although currently in good shape with a funded status of 78% and an amortization period of 28 years, is in this position because the mandate to protect the pension was OPERS’ top priority.

The other contributing factor to the Health Care Fund’s solvency challenge is a product of something we all can relate to – the ever-increasing cost of health care coverage and medications.  OPERS continues to provide a group plan for the pre-Medicare retiree population as they wait to turn 65 and join the OPERS connector model through Via Benefits.  Overall, the pre-Medicare population has experienced exceptionally high health care costs that are reflected in escalating premiums OPERS is paying for their coverage.  As the premiums increase, so does the cost to retirees.  Those who are in good health are finding lower cost options outside of OPERS and are abandoning the group plan.  As the percentage of medically-challenged individuals in the plan increases, so do the premiums – so much so that given current trends, coupled with no plan design changes or consistently robust annual investment returns, the health care plan will become insolvent in slightly more than a decade.

OPERS board and staff have made Health Care Plan design changes a priority.  Their plan is to spend the next several months crafting changes to health care that will ensure the long term solvency of the fund for retirees.

PERI remains committed to monitoring the progress and communicating with OPERS as they pursue this process.  Additionally, we continue to provide input to OPERS board members who represent retirees on this issue as well as the future status of the COLA.  Despite the fact that health care is not a protected benefit, we continue to support keeping health care coverage as robust as possible for our retirees.

 

1 Comment

  1. Donna says:

    I’d rather see changes to the pre-Medicare health plan while leaving COLA and the Medicare subsidy as is. Most retirees (like myself) are only on the pre-Medicare plan for a short while, if that. But COLA and Medicare are for life.

Leave a Reply

Rules for Posting on the PERI Website

  • This website and the opportunity to post replies to news stories is for the benefit of PERI and its members.
  • You must be a member in good standing of PERI in order to post content.
  • No profanity, disrespectful remarks, inaccurate information or other inappropriate content is allowed.
  • PERI reserves the right to manage content as it sees fit and at its sole discretion may determine that certain posters be banned from posting on this website.
  • PERI expects that any content submitted for posting will have been vetted by the writer for accuracy and be fact-based.  Let common sense and good judgment be your guide.
  • By submitting a post you agree to the terms and conditions above

Your email address will not be published. Required fields are marked *