Source: Pew Charitable Trusts, May 2016
From the overview:
This report, a first-of-its-kind effort, provides data on state OPEB liabilities—the cost in today’s dollars of benefits to be paid to current workers and retirees over future years—and funding trends and how they are affected by aspects of state retiree health plans. Researchers collected and analyzed updated OPEB financial data and trends since 2010, as well as 50-state data on the eligibility criteria for retiree health plans. (To convey more clear and consistent trends, we report 50-state OPEB data only since 2010, because many states were adjusting to newly implemented GASB reporting standards in 2008 and 2009.) They found that states’ strategies for addressing OPEB liabilities vary greatly and that the methods states choose to contribute to their retirees’ health insurance premiums substantially affect the size of their OPEB liabilities. Specifically, the researchers found:
States’ OPEB liabilities decreased 10 percent, to $627 billion, between 2010 and 2013, after adjusting for inflation. This drop resulted from lower rates of growth in health care costs and changes states made to their OPEB funding policies and retiree health plan provisions.
State-funded ratios—representing the amount of assets states have set aside to fund their OPEB liabilities—increased from 5 percent in 2010 to 6 percent in 2013.7 However, this trend varied greatly among states—the funded ratio of eight states decreased, and Oregon increased its funded ratio by 25 percentage points.
States’ actual expenditures for OPEB totaled $18.4 billion in 2013, or 1.6 percent of state-generated revenue.(See “Glossary” box.) If states had instead set aside the amount suggested by actuaries to pay for OPEB liabilities, their total payments that year would have more than doubled to $48 billion—4 percent of state-generated revenue—and spending to fully fund OPEB obligations would have outpaced what states contributed to active state employee health premiums.
The states that automatically increased their retiree health insurance premium contribution when the total cost of the premium rose had higher OPEB liabilities relative to the size of their economies in 2013, while the states that paid a fixed amount toward retirees’ health insurance premiums had relatively lower OPEB liabilities.
States varied in how they modified retiree health plan provisions. For example, between 2000 and 2015, Idaho eliminated retiree health coverage for newly hired employees; at least five states stopped making any health premium contribution for certain retirees; and over a dozen states changed the minimum age or the number of state service years required for retirees to be eligible for health benefits.
35 states have implemented Medicare Advantage or Employer Group Waiver Plans to provide health or prescription drug benefit coverage for Medicare-eligible retirees since these options were authorized as part of the Medicare Prescription Drug, Improvement, and Modernization Act of 2003.8 These cost-saving programs provide states with financial subsidies from the federal Medicare program to provide Medicare plus wraparound benefits.9 (See “Glossary” box.)
As state policymakers address challenges in providing retiree health care, this report is intended to help them better understand how their spending, long-term liabilities, and criteria for premium contributions and coverage eligibility compare with those of other states.