Senate OPEB Study Group

CHARLESTON: THE CAPITOL: Facing a rising tide of debt created by health care demands of retirees today and for the future, a special study group appointed by State Senate President Earl Ray Tomblin has reported its findings and results, which Sen. Brooks McCabe says “must be implemented if West Virginia educators, public employees and other entities have a financially solvent retiree health care program.”

“The public and those affected employees must understand our recommendations will require everyone to sacrifice some and share in meeting the cost of what is being called OPEB—Other Post Employment Benefits—so that in a few years we will be able to return to budgets which can provide financial rewards and incentives to both the professionals and employees of our state and its educational systems,” said Sen. McCabe.

Actuarial reports released last year stated the costs must be accounted for by all governmental organizations, groups and agencies with the responsibility to pay for post employment benefits, which cover medical insurance costs of retirees. It effectively created a liability issue, not only for West Virginia but a host of other states. President Tomblin said other states have not even begun to address the problem. “We need to get a jump on it and on it now, before the liability becomes so large that it literally consumes all our future economic growth,” the President added.

Sen. McCabe, who chaired the study group, described the effort as “heavy lifting for the legislature and everyone else” over the next five years, while state leaders get a grip on beginning to finance the unfunded liability which amounts to approximately $7.8 billion.

“This can be accomplished with fifty percent administrative and fifty percent legislative efforts,” Sen. McCabe said. “Right now our annual growth in Medicaid and PEIA costs are approximately to the normal growth of the state’s general revenue budget, and as long as that lasts there cannot be any consideration for pay raises or other critical issues needing attention by the State.”

Sen. McCabe said the Senator’s special study group was challenged by President Tomblin to develop a solution “sooner rather than later” even though it is an election year, and will no doubt result in strong political debate on the issue. “But, we just cannot wait for a more convenient time,” Sen. McCabe added. “If we can overcome the financial and political challenges this represents, West Virginia will not only be a national leader in this effort, it will result in a stronger fiscal position for the state.”

Sen. McCabe noted that past efforts to reduce state liabilities in state retirement systems and Worker’s Compensation, have gained the attention of financial markets resulting in improved bond ratings. “This is big,” said Sen. McCabe, “...just think of what this will mean in savings when we return to the bond markets and can obtain funds with reduced interest rates, and it is all tied to our ability and our reputation of being able to keep the state on a solid financial foundation.”

A recent survey stated West Virginia is a national leader in terms of economic stability due largely to its efforts to protect its ability to pay for entitlements, by paying down unfunded liabilities. “While this is important,” Sen. McCabe said, “the most important thing to remember is that we have a responsibility, not just the legislator, but every taxpayer and every citizen, to meet our public obligations. And, we want to be able to do that without having to sacrifice a great deal more in the future.”

Part of the program to bring down the $7.8 billion liability includes paying benefits “as you go” as well as creating proper reserves for paying those benefits, Sen. McCabe said. “We will have to institute a number of reforms in the PEIA system in order to continue to reduce costs, create more efficiency in the system and aggressively manage medical inflation.

“We really must do all of this, what is being proposed, or we can do nothing and sink further into debt. If it can be achieved, we can get the liability down without increasing taxes and that ultimately allows the state to properly fund need programs and salary increases for our hard working state employees,” Sen. McCabe said.

“I just cannot emphasize strongly enough, the need to implement all of the recommendations, not just some of them as interest groups may be proposing.”

Sen. McCabe noted that President Tomblin’s close inter-action with national legislative organizations helped to develop the proposals, and will enable the state to get ahead of the issue nationally. “The Senate’s leadership recognizes the problem and fully supports what the study group is attempting to do. The House is now looking at the issue and carefully reviewing the Senator’s study group suggestions.

The group spent about three months of study to come up with suggestions for the Legislature. Those serving on the Senate Study Group on OPEB in addition to Sen. McCabe, included Sen. Walt Helmick, Sen. Richard Browning, Sen. William Laird, Sen. Robert Plymale, Sen. Roman Prezioso, Sen. Mike Hall and Sen. Dave Sypolt.

The proposed suggestions are listed below:

OPEB liability reduction suggestions for education and state employees included:

• Move minimum retirement age for PERS and TRS from 55 to 60 starting for all new hires after July 1, 2011. (Legislation needed).
• Increase vesting for pensions for all new hires from 5 to 10 years, beginning July 1, 2011. (Legislation needed).
• Increase vesting for retirement healthcare benefits for all new hires from 5 to 15 years, beginning July 1, 2011.
• For active participants choosing family or spousal coverage, tax returns for all family wage earners will be used to determine total income sliding scale premiums. Without documentation, highest premium level to be used in calculating premiums.(Legislation needed to authorize tax department to release returns to PEIA and CPRB).
• Deductions and out-of-pockets will be narrowed between all PEIA active participants by no more than three times the minimum through a phase-in starting July 1, 2011 and completed by July 1, 2015.
• As premium adjustments are made in the future, starting July 1, 2011, with full implementation by July 1, 2015, PEIA will close the subsidy gap between low and high wage earners to no greater than $300/month for family coverage and $100 per month for single coverage (currently it is $500 to $600)
• For OPEB liabilities incurred by the county boards of education before July 1, 2010, make those OPEB liabilities that are attributable to school personnel who are included in the calculation of the total basic foundation program pursuant to Article 9, Chapter 18 obligations of the state, and for those OPEB liabilities that are attributable to school personnel who are NOT included in the calculation of the total basic foundation program pursuant to Article 9, Chapter 18, obtain information needed to make a determination about whether or not all county school boards would have the financial ability to take on those OPEB liabilities.
• For those OPEB incurred by the county boards of education on and after July 1, 2010, make those OPEB liabilities that are attributable to school personnel who are included in the calculation of the total basic foundation program pursuant to Article 9, Chapter 18 obligations of the state, and make those OPEB liabilities that are attributable to employees of the county boards of education who are NOT included in the calculation of the total basic foundation program pursuant to Article 9, Chapter 18, obligations of the county boards of education.
• Authorize PEIA to set minimum annual required contribution at level below Annual Required Contribution, substitute “Annual Contractual Obligation” for “minimum annual required contribution” , and specify each participating government entity is required to remit annual contractual obligation to Trust Fund within GASB. (Legislation needed).
• Specify in code only unpaid portion of annual contractual obligation is to be reported as current liability on financial statements by each participating government entity. Also, difference between Annual Required Contribution and contractual obligation shall be reported as long-term liability on financial statements (if ok with GASB). (Legislation needed).
• Identify and dedicate a funding source which will create $100,000,000 per year to be deposited in the Retiree Health Benefit Trust Fund for the two fiscal years 2011 & 2012 for a total of $200,000,000.
• Retirees Health Benefit Trust Fund keeps corpus and all earnings in Trust through fiscal year 2015 to increase fund balance needed for future OPEB subsidy.
• Legislature sets pay go funding up to $150 million per year by July 1, 2011 and maintains at same level going forward, in essence putting $150 million cap on pay go. (Legislation advised).
• Change 80-20 rule for premiums to employees pay a minimum.
• PEIA develop a Plan “C” with different benefit and payment structure to provide more flexibility to plan recipients, i.e., a cafeteria choice plan where participants could choose benefits with various cost structures and choose what they pay for.
• In order to increase the salary of beginning teachers to an average of $38,000, increase the salaries of teachers in years 0-11 over a five-year period so that the salaries in those years are the same as the salaries paid in year 12,according to the basic plus equity salary schedule. A teacher with a bachelor's degree would start out with a salary of $37,483 plus any county salary supplement that may be in effect in the county.
• As the medical inflation rate is a key component of the formula for projecting the OPEB unfunded liability, any and all policies that, by consensus of experts, have been clearly shown to control healthcare costs while maintaining quality should be strongly supported.

OPEB suggestions for employees of municipalities, counties and other non-educational boards.

• Going forward, pull non-state participants out of Retiree Health Benefit Trust Fund. (Legislation needed).
  • Non-state participants would pay actual costs for retirees
  • Non-state participants would set their own employer-employee premium contributions
  • Non-state participants would need to fund their own actuarial study for OPEB liability every two years going forward
• For past obligations, have PEIA do study on how to separate non-state from state pay-go obligations within the Trust Fund. This could be done by actuarially establishing a lower non-state premium for their Trust Fund Obligation. (Legislation needed).
• As PEIA reworks data to separate non-state exposure, PEIA will provide utilization data to non-state participants so they can better perform their own health care and claims management assessments and structure benefits accordingly.
• Non-state participants may consider another court case to review the “detrimental reliance” opinion espoused in the Boothe v. Simms case.
• Clarify the tying/untying of PERS and PEIA for non-state participants in PERS, but not in PEIA.
• PEIA to do a study on authorizing medical savings accounts for non-state participants.