PERI Closely Following OPERS Proposed Changes to Health Care

OPERS and PERI Board Discuss Health Care Funding Issues
January 25, 2019
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August 23, 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.

 

9 Comments

  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.

    • Donna says:

      Jim – Thank you for providing this link! It will be interesting to see how much the OPERS executives get in bonuses from our pension money.

  2. Jerry M. says:

    After Opers makes the changes to pre-medicare healthcare, The bonuses the Opers executives will receive could be considered astonishing.

  3. Keith LaVrar says:

    Go to the OPERS web site and take the health care funding survey. Take your time and read the questions carefully. And yes, the way the questions are written reminds me of the COLA survey.

  4. Richard Bartley says:

    If we give up the cola, they will just take the health care later anyway. If the cola is contractual, how can they take it without our agreeing?

    • ja says:

      Find your state reps:

      https://www.legislature.ohio.gov/legislators/district-maps

      Then write to them.

      I had difficulties with the portal they offer for your communication, and was told by a rep that it didn’t work that well, anyway. So find the rep, google the rep, and try to get a better more direct e-mail for your rep. I think what you post on the portal might become public information anyway. Not sure.

      I think you are right — OPERS will “say” if COLA isn’t frozen, health care goes away. But it probably will go away anyway….But while COLA is governed by the legislature. OPERS health care is entirely in the hands of OPERS…..I am tired of feeling as if I am an unworthy recipient of their “generosity” when I worked for my pension which offered (at least as an EXPECTATION in retirement) health care…..and I, as did many of we older retirees — retired under the rules at the time. For me is was 2007. …… let’s encourage others on blogs like this one to write to their rep, or contact one of the two board members who seem to be in our corner — every time we complain on the blog. I complain on it too. It is a good place to vent. But writing our reps and contacting board members might give us more leverage. Thank you for listening. Good luck to retirees. JA

      • Heidi says:

        Interesting article. I wondered if bad investing and unrestricted management played into this massive and very scary problem!

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