The SB616 Plan Projects the State of West Virginia's OPEB Liability Would Decrease Over Time (Green Line) While the Fund's Balance (Red Line) Would Increase
The West Virginia Education Association has indicated to its members that the state Senate is trying to shift the future cost of retiree health care benefits onto the backs of retirees. Nothing could be further from the truth.
For a more balanced review of the Senate’s plan to address Other Post Employment Benefits (OPEB), see the West Virginia School Board Association’s recent report.
Senate Bill 616 sets the pay go amount at $160 million and converts it to a per member, per month amount of $230. The current pay go is $145,177,000. This represents an increase of $14.8 million.
In the next 5 years the number of retirees and dependents is expected to increase on average 2.3% per year. The pay go is set to increase an additional 1.2% per year. This means the state’s contribution will increase approximately 3.5% per year because of the increase in retirees and their dependents.
This rate of growth is comparable to the anticipated natural budget growth of general fund revenues on a per year basis. So the state is increasing the pay go now by approximately 10% and then keeping pace with its revenue growth for the next five years.
In addition, SB616 identifies the minimum need for another $50 million a year to be applied toward retiree premium subsidies and the OPEB trust fund. The cash flow analysis (PDF) prepared by the Public Employees Insurance Agency’s actuary shows the need to use $45 million of the $50 million for premium subsidy after the first few years. It also shows the need to keep this funding in place for 20 years. That means the state must come up with $1 billion dollars of funding support for retiree health care premiums in that period of time.
During that same time, the pay go goes from $145,177,000/year to $217,553,000/year. That equates to a little over $3.9 billion of which the state pays 80% and the active employees pay 20%. All totaled, there is almost $5 billion paid into retiree subsidies over the next 20 years per the actuaries estimates.
The problem is that medical and prescription drug inflation is increasing at almost twice the rate of the state’s projected revenue growth. If you keep all assumptions the same as they are presently, there is just not enough money to sustain the current retiree health care benefit plans over the long term.
The WVEA does not take into account the need to both redesign the system and to simultaneously implement cost-containment measures. All the while, with the state making a substantial commitment to increase its funding. The main purpose of SB616 is to put in place a major funding source that can substantially mitigate drastic increases in retiree premiums over the next five years.
The second piece of legislation from the Senate is a resolution to be presented in the next several days which will address the cost containment side of the equation.
It is being presented as a resolution rather than a bill because most of the cost containment initiatives need to come from the PEIA Finance Board. Given that health care reform is a work in progress, it is hard to tell what will be the menu of tools available to the PEIA Finance Board. The board needs maximum flexibility, rather than have their hands tied by the Legislature in one snap shot of time.
OPEB is complicated and multifaceted. To summarize the Senate’s position, retire health care is not like pensions, in that it is a benefit that can be altered or eliminated over time. There is a very strong belief in the Senate that we must do everything we can to protect this retiree benefit.
SB616 puts forth the framework for a massive infusion of funding to protect many of those benefits. However, there is not enough money to continue, unchanged, the current plans going forward.
SB 616 is designed to provide five years of solid funding with an affordable long term state commitment for putting in place the dollars necessary to eliminate the $7.5 billion unfunded OPEB liability over 30 years.
During the next five years there will be a lot of heavy lifting by all involved. It is hoped that cost-containment, plan redesign and increased state funding can all work together to provide for a future where the state of West Virginia’s retirees can have health insurance that meets their needs with reasonable and affordable premiums.
