FISCAL NOTE

Date Requested: January 28, 2019
Time Requested: 03:10 PM
Agency: Public Employees Insurance Agency (PEIA)
CBD Number: Version: Bill Number: Resolution Number:
2975 Introduced SB451
CBD Subject: Education (K12)


FUND(S):

RHBT OPEB Contribution Accumulation Fund

Sources of Revenue:

Special Fund

Legislation creates:

Creates New Expense



Fiscal Note Summary


Effect this measure will have on costs and revenues of state government.


The purpose of this bill regarding PEIA is to create a new leave conversion benefit for policyholders of the Teachers Retirement System (TRS) and allow charter schools to participate in the non-State Agency Fund, a voluntary participation risk pool. This Fiscal Note will increase current retiree benefit costs to the State and the unfunded Other Postemployment Benefit (OPEB) actuarially accrued liability. Currently, no policyholders within TRS hired after July 1, 2001 is eligible to covert their leave at retirement into healthcare insurance. With passage of this bill, current enrollment indicates 26,000 TRS policyholders with a hire date after July 1, 2001 will now be eligible for this benefit. The last OPEB report indicates the Actuarial Accrued Liability of the current sick and annual leave conversion benefit for TRS employers to be $41 million. This value is based on the following benefit: Plan participation before July 1, 1988: • 2 days of accrued leave = 100% of the premium for one month of single coverage • 3 days of accrued leave = 100% of the premium for one month of family coverage Plan participation between July 1, 1988 and June 30, 2001: • 2 days of accrued leave = 50% of the premium for one month of single coverage • 3 days of accrued leave = 50% of the premium for one month of family coverage with enrollment of approximately 12,000 policyholders. Due to time restrictions, the following estimates have not been created by actuaries. PEIA has utilized current enrollment and past OPEB Actuarial Reports to create high level cost estimates. PEIA has adjusted the current assumptions per the current benefits to arrive at an estimated fiscal impact. PEIA has assumed that 30% of newly eligible policyholders will convert their leave for this benefit. This is 5% lower than current assumptions. This is due to the lower value conversion rate of 10 days of accrued leave = premium for one month of family coverage. PEIA has assumed the value of this benefit is 125% of current benefit value of $41 million. This is due to the conversion rate equal to 100% value of premium (10 days of accrued leave = premium for one month of family coverage.) There is also an issue with this new conversion benefit in that all post 2010 hired employees are only eligible for unsubsidized premiums. This will dramatically increase the cost of the premium that employers must pay in the future as more post July 1, 2010 hired employees retire, offsetting the lower conversion rate’s impact. By applying the above assumption to existing TRS policyholders, the State can assume 7,800 policyholders will convert leave for health insurance and increase the OPEB AAL by $35 million. This will also significantly undermine the perception of the States dedication to resolving unfunded liabilities and negatively impact the State’s credit rating and potentially increase financing costs of the State. In addition to the OPEB actuarially accrued liability, the new leave conversion benefit will impact current expenses and cash flows. For each retiree that converts leave into healthcare insurance, the average premium for 100% leave conversion retirees is currently $257 per policy per month. By applying the earlier participation assumption of 7,800 employees, and an increase of 15% due to higher, unsubsidized premiums, the monthly cost of additional premium could reach $2.3 million, and $27.6 million annually. Without knowledge of the charter school employee’s risk index, the impact to the non-State Agency Fund risk pool is unknown. The premiums for this Fund are adjusted annually as necessary per the experience of the Fund.



Fiscal Note Detail


Effect of Proposal Fiscal Year
2019
Increase/Decrease
(use"-")
2020
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 62,600,000 0
Personal Services 0 0 0
Current Expenses 0 27,600,000 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 35,000,000 0
2. Estimated Total Revenues 0 0 0


Explanation of above estimates (including long-range effect):


PEIA has assumed that 30% of newly eligible policyholders will convert their leave for this benefit. This is 5% lower than current assumptions. This is due to the lower value conversion rate of 10 days of accrued leave = premium for one month of family coverage. PEIA has assumed the value of this benefit is 125% of current benefit value of $41 million. This is due to the conversion rate equal to 100% value of premium (10 days of accrued leave = premium for one month of family coverage.) There is also an issue with this new conversion benefit in that all post 2010 hired employees are only eligible for unsubsidized premiums. This will dramatically increase the cost of the premium that employers must pay in the future as more post July 1, 2010 hired employees retire, offsetting the lower conversion rate’s impact. By applying the above assumption to existing TRS policyholders, the State can assume 7,800 policyholders will convert leave for health insurance and increase the OPEB AAL by $35 million. This will also significantly undermine the perception of the States dedication to resolving unfunded liabilities and negatively impact the State’s credit rating and potentially increase financing costs of the State. In addition to the OPEB actuarially accrued liability, the new leave conversion benefit will impact current expenses and cash flows. For each retiree that converts leave into healthcare insurance, the average premium for 100% leave conversion retirees is currently $257 per policy per month. By applying the earlier participation assumption of 7,800 employees, and an increase of 15% due to higher, unsubsidized premiums, the monthly cost of additional premium could reach $2.3 million, and $27.6 million annually.



Memorandum






    Person submitting Fiscal Note: Jason Haught
    Email Address: jason.a.haught@wv.gov