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Bleak Future for Government Retiree’s Health Coverage, says NEBCO’s Fleet
November 1, 2006 – Arlington, VA – With big city and
county governments set to report future liabilities for retiree
health obligations, Samuel Fleet, CEO, National Employee Benefit
Companies (NEBCO), today predicted an uncertain future for
retirees.
Speaking at the Strategic Research Institute’s conference, “Medicare Part D: What is the Future?,” Fleet, said “the question is whether retiree benefits will exist after GASB.”
GASB, the Government Accounting Standards Board, requires most large public employers to reflect the future cost of health care for retirees on their current balance sheets. The first reporting for the largest entities will come in December.
“As a result of the GASB requirements, government employers need to immediately focus on several key issues. Undoubtedly many will be surprised – even shocked – by the magnitude of the liability.” For example, the Los Angeles Unified School District – the second largest school district in the United States – estimates that its unfunded liability for retiree health care is $5 billion—a figure that is roughly 80% of its entire annual budget.
Fleet explained that public employers are about to take center stage as the new GASB reporting requirements for government agencies kicks in, and billions of dollars in unfunded liabilities move from obscure footnotes to a major item on the balance sheet.
“At the same time, Medicare Part D has made prescription drug coverage a complex headache for employers. The 28 percent federal subsidy that was supposed to sweeten the pot is proving to be worth far less to public employers than they had hoped,” said Fleet. There’s no tax advantage for municipalities taking the subsidy, Fleet said.
Fleet recommended a new strategy of contracting out retiree health benefits, that converts prescription drug costs from a future liability to an annual expense, reduces administrative headaches and continues to meet the commitment made to retirees.
One course government entities may consider is to apply for a federal waiver that allows them to become a Medicare D Prescription Drug Plan (PDP) themselves. While this decision enables employers to design their own benefit packages and share the risk with the federal government, it also carries several additional burdens. These include a complicated filing process, exposure to costly federal audits and the administrative burden of tracking employees who sign up for Medicare Part D independently.
Also, states, counties and municipalities can contract with a PDP to outsource the administration of Medicare D. While this makes them ineligible for the federal subsidy and requires that they educate their retiree population about the plan they are sponsoring, the benefits include shifting the risk to the PDP and the federal government and avoiding GASB 45 implications thereby protecting credit ratings and the ability to sell bonds.
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Speaking at the Strategic Research Institute’s conference, “Medicare Part D: What is the Future?,” Fleet, said “the question is whether retiree benefits will exist after GASB.”
GASB, the Government Accounting Standards Board, requires most large public employers to reflect the future cost of health care for retirees on their current balance sheets. The first reporting for the largest entities will come in December.
“As a result of the GASB requirements, government employers need to immediately focus on several key issues. Undoubtedly many will be surprised – even shocked – by the magnitude of the liability.” For example, the Los Angeles Unified School District – the second largest school district in the United States – estimates that its unfunded liability for retiree health care is $5 billion—a figure that is roughly 80% of its entire annual budget.
Fleet explained that public employers are about to take center stage as the new GASB reporting requirements for government agencies kicks in, and billions of dollars in unfunded liabilities move from obscure footnotes to a major item on the balance sheet.
“At the same time, Medicare Part D has made prescription drug coverage a complex headache for employers. The 28 percent federal subsidy that was supposed to sweeten the pot is proving to be worth far less to public employers than they had hoped,” said Fleet. There’s no tax advantage for municipalities taking the subsidy, Fleet said.
Fleet recommended a new strategy of contracting out retiree health benefits, that converts prescription drug costs from a future liability to an annual expense, reduces administrative headaches and continues to meet the commitment made to retirees.
One course government entities may consider is to apply for a federal waiver that allows them to become a Medicare D Prescription Drug Plan (PDP) themselves. While this decision enables employers to design their own benefit packages and share the risk with the federal government, it also carries several additional burdens. These include a complicated filing process, exposure to costly federal audits and the administrative burden of tracking employees who sign up for Medicare Part D independently.
Also, states, counties and municipalities can contract with a PDP to outsource the administration of Medicare D. While this makes them ineligible for the federal subsidy and requires that they educate their retiree population about the plan they are sponsoring, the benefits include shifting the risk to the PDP and the federal government and avoiding GASB 45 implications thereby protecting credit ratings and the ability to sell bonds.
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