copyright © 2008 grs – all rights reserved. health and opeb funding strategies: 2009 national...

Copyright © 2008 GRS – All rights reserved.

Health and OPEB Funding Strategies:2009 National Survey of Local

Governments

A presentation by Paul ZornDirector of Governmental Research

Gabriel Roeder Smith & Company

Presentation Overview

Survey Background Characteristics of the Respondents Key Findings

►Economic Environment►Health Care for Active Employees►Health Care for Retirees►Addressing GASB 45►Health Care Strategies

Conclusions

© 2009 Cobalt Community Research

Disclaimers

The author is not an actuary or an attorney. Consequently, statements made are not meant to offer actuarial or legal advice or opinion.

The opinions offered are those of the author and do not necessarily represent those of his employer or of others who sponsored or participated in the survey.


Background

In 2004, the Governmental Accounting Standards Board issued Statement No. 45 (GASB 45), “Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions (OPEB).”

GASB 45 established a national requirement for the measurement and disclosure of governmental OPEB liabilities, especially in the area of health care for retirees.

While several studies have examined OPEB issues for statewide retirement systems or for a limited sample of local governments, this study deliberately targeted a cross-section of local governments – especially smaller ones – across the United States.


Background (continued)

The study was conducted by Cobalt Community Research and sponsored by:

► Gabriel, Roeder, Smith & Company► Municipal Employees’ Retirement System of Michigan► National Conference on Public Employee Retirement

Systems► International Foundation of Employee Benefit Plans► Government Finance Officers Association► Employee Benefit Research Institute► Tegrit Financial

Major questions the survey seeks to answer:► What’s the economic environment for local governments?► To what extent do local governments provide health care?► Who is aware of the GASB 45 requirements and has done

the valuation? ► Which strategies are local governments using to reduce

or fund their liabilities?© 2009 Cobalt Community

Research

The survey questionnaire was sent to a random sample of approximately 7,500 local governments in the United States, drawn from the U.S. Census Bureau’s government database.

Responses were received from 1,534, for a 20% response rate.

Responding governments included counties, municipalities, townships, and special districts as defined by the U.S. Census Bureau.

The 2009 sample is different than the sample used in 2008:► Oversamples larger governments and does not include

governments with populations of 1,500 or less. ► This was done to obtain a greater representation in the

survey by the governments that are more likely to provide health care benefits to active and retired employees.

Characteristics of the Respondents



76%

8% 8% 6%2%

42%

16% 15% 14% 13%

0%

30%

60%

90%

< 5,001 5001-10,000 10,001-25,000 25,001-100,000 100,001+

Pe

rce

nt in

Po

pu

lati

on

Siz

e C

ate

go

ry

Population Size Category

Comparison of Respondents with U.S. Local Governments by Population Size(Excluding Special Districts)

Census of Governments

Respondents

16%

33%

22%

29%

4%

25%

22%

49%

0%

10%

20%

30%

40%

50%

60%

County Municipal Township Special District

Pe

rce

nt i

n T

yp

e o

f G

ov

ern

me

nt

Type of Government

Comparison of Respondents with All U.S. Local Governmentsby Type of Government

Respondents

Census of Governments



Key Findings – Economic Environment

The economic environment is having an effect on local government revenue and employment expectations.

The percentage of local governments expecting a decrease in revenue for 2010 rose from 16% to 49%.

The percentage expecting a decrease in employment rose from 5% to 21%.

The percentage expecting more consolidation/shared services increased from 10 to 26%.


22%

16%

47%

10%

5%

9%

49%

34%

7%

1%

0%

10%

20%

30%

40%

50%

60%

Increase Decrease Stay Same Don't Know No Answer

Pe

rce

nt o

f T

ota

l Re

sp

on

de

nts

How do you expect your local government's revenue levels to change next year compared to this year? (Q4)

2008 Survey Respondents 2009 Survey Respondents


Revenue & Employment Expectations

Revenue & Employment Expectations

6% 5%

78%

6% 5%

3%

21%

68%

6%

1%0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Increase Decrease Stay Same Don't Know No Answer

Pe

rce

nt o

f T

ota

l Re

sp

on

de

nts

How do you expect your local government's employment levels to change next year compared to this year? (Q5)

2008 Survey Respondents 2009 Survey Respondents


Key Findings – Health Care for Active Employees

78% of the respondents provide health care to their active employees and 30% provide health care to retirees.

Of governments that provide health care to active employees, abut two-thirds pay between 81% - 100% of employees’ premiums.

Generally, governments serving larger populations are more likely than smaller governments to provide health care for active employees and retirees.

Many governments that offer heath care do so on a fully insured basis through a commercial carrier.


Health Care for Active Employees


78%

20%

2%

0%

20%

40%

60%

80%

100%

Govt. Provides HC Govt. Does Not Provide HC No Answer

Pe

rce

nt o

f T

ota

l Re

sp

on

de

nts

Does the government provide health care benefits to active employees? (Q8)


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

< 5,001

5001-10,000

10,001-25,000

25,001-100,000

100,001+

Percent of Respondents in Population Size Category

Po

pu

lati

on

Siz

e

Comparison of Respondents Providing Active Employee Health Careby Population Size

Govt. Provides HC Govt. Does Not Provide HC



0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

County

Municipality

Township

Special District

Percent of Respondents in Type of Government Category

Ty

pe

of G

ov

ern

me

nt

Comparison of Respondents Providing Active Employee Health Careby Type of Government




1%4%

1%3%

13%

74%

4%1%

3%1% 3%

12%

67%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

None 1-20% 21-40% 41-60% 61-80% 81-100% Not Sure/No Answer

Perc

en

t o

f R

esp

on

den

ts P

rovid

ing

Acti

ve E

mp

loyee H

ealt

h C

are

Percent of Premium Paid by Government

For governments providing active employee health care, what percentage of the premium is paid by the local government? (Q10)

2008 Survey Respondents




42%

16%

10%

16%

4%

12%

0%

10%

20%

30%

40%

50%

Fully Insured -Commercial

Carrier

Self Insured -Employer

Insurance through State

Insurance through Coalition

Other No Answer

Perc

en

t o

f R

esp

on

den

ts P

rovid

ing

Acti

ve E

mp

loyee H

ealt

h C

are

For governments providing active employee health care,how are health care benefits insured for active employees? (Q11)


Key Findings – Health Care for Retirees

30% of the respondents provide health care to their retirees.►Of these, 2/3rds cover both pre-Medicare and

Medicare eligible retirees.

Generally, respondents serving larger populations are much more likely to provide retiree health care.

Of governments that provide retiree health care: ►One-third pay benefits between 81% and 100%

of the retiree’s premiums, and►One-third pay none of the retiree’s premiums.

For half of the respondent governments, retirees paid the same premium as active employees.


Health Care for Retirees


5%

1%

10%

84%

0%

9%

1%

20%

64%

5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Pre-Medicare Only

Medicare Only Both Govt. Does Not Provide Retiree

HC

No Answer

Pe

rce

nt o

f R

es

po

nd

en

ts

Which retirees receive health care benefits from your local government? (Q12)



Note: This chart should not be interpreted as reflecting an increase in the number of jurisdictions that provide retiree health care.It is more likely the changes reflect the 2009 survey's greater proportion of respondents representing larger governments.


0% 20% 40% 60% 80% 100%

< 5,001

5001-10,000

10,001-25,000

25,001-100,000

100,001+

Percent of Respondents in Population Size Category

Po

pu

lati

on

Siz

e

Provision of Retiree Health Care by Population Size




0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

County

Municipality

Township

Special District

Percent of Respondents in Type of Government Category

Ty

pe

of G

ov

ern

me

nt

Provision of Retiree Health Care by Type of Government




32%

5%6% 6%

10%

34%

7%

31%

5% 3%

10% 8%

36%

6%

0%

5%

10%

15%

20%

25%

30%

35%

40%


Pe

rce

nt

of

Re

sp

on

de

nts

Pro

vid

ing

H

ea

lth

Ca

re f

or

Ea

rly

Re

tire

es


For governments providing health care for early retirees (pre-Medicare), what percent of the premium is paid by the local government? (Q13)





39%

3%

1%

5%6%

32%

14%

30%

5%

2%

8% 8%

33%

13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%


Pe

rce

nt

of

Re

sp

on

de

nts

Pro

vid

ing

H

ea

lth

Ca

re f

or

Me

dic

are-

Elig

ible

R

eti

ree

s


For governments providing health care for Medicare-eligibleretirees, what percent of the premium is paid by the local government? (Q14)





15%

24%

48%

13%

17%

14%

55%

14%

0%

10%

20%

30%

40%

50%

60%

Retirees Higher Retirees Lower Retirees Same Not Sure/No Answer

Perc

en

t o

f R

esp

on

den

ts T

hat

Pro

vid

e R

eti

ree H

ealt

h C

are

For governments providing retiree health care, how do retiree premiums compare to active employee premiums? (Q15)





43%

19%

24%

11%

3%

49%

11%

17%

15%

7%

0%

10%

20%

30%

40%

50%

60%

As Single Employer

Thru State Thru Coalition Other No Answer

Perc

en

t o

f R

esp

on

den

ts T

hat

Pro

vid

e R

eti

ree H

ealt

h C

are

For governments providing retiree health care, how do you purchase health care benefits for your retired employees? (Q16)




Key Findings - Addressing GASB 45

81% of the local governments that provide retiree health care are aware of the GASB 45 requirements. Those that aren’t aware are typically smaller governments.

62% report they have already calculated the liability or the calculation is in progress.

Of respondents that have completed their OPEB valuation, 55% have liabilities less than $10 million. However, 13% have liabilities exceeding $100 million.

Of the governments that have completed their OPEB valuation, 40% plan to fully or partially prefund the liability.© 2009 Cobalt Community

Research

Addressing GASB 45


74%

23%

3%

81%

13%6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Aware of GASB 45 Not Aware of GASB 45 No Answer

Pe

rce

nt o

f R

es

po

nd

en

ts T

ha

t P

rov

ide

Re

tire

e H

ea

lth

Ca

re

For governments providing retiree health care, are you aware of GASB Statement 45? (Q17)




0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

< 5,001

5001-10,000

10,001-25,000

25,001-100,000

100,001+

Percent Respondents in Population Size Category

Po

pu

lati

on

Siz

e

Awareness of GASB 45 by Population Size For Governments Providing Retiree Health Care

Aware of GASB 45 Not Aware of GASB 45

Addressing GASB 45


0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

County

Municipality

Township

Special District

Percent Respondents in Type of Government Category

Typ

e o

f G

ove

rnm

en

t

Awareness of GASB 45 by Type of Government For Governments Providing Retiree Health Care

Aware of GASB 45 Not Aware of GASB 45

Addressing GASB 45


26%

21%

27%

26%

51%

11%

19%20%

0%

10%

20%

30%

40%

50%

60%

Completed In Process Not Calculated Not Sure/No Answer

Pe

rce

nt o

f R

es

po

nd

en

ts T

ha

t P

rov

ide

Re

tire

e H

ea

lth

Ca

re

For governments providing retiree health care,have you calculated your OPEB liability? (Q18)

Addressing GASB 45


25%

29%

21%

9% 9%

3%

1% 2%

0%

5%

10%

15%

20%

25%

30%

35%

Pe

rce

nt o

f R

es

po

nd

en

ts T

ha

t H

av

e D

on

e a

n O

PE

B V

alu

ati

on

For governments that have done an OPEB valuation, what is your OPEB liability? (Q19)

Addressing GASB 45


48%

26%

7% 8%

2% 1%

8%

0%

10%

20%

30%

40%

50%

60%

Per

cen

t of

Res

po

nd

ents

Th

at H

ave

Do

ne

an O

PE

B V

alu

atio

n

For governments that have done an OPEB valuation,what is your annual required contribution (ARC)? (Q20)

Addressing GASB 45


52%

21% 19%

3%

1%

19%

4%

0%

10%

20%

30%

40%

50%

60%

Continue pay-as-you-go

Partially fund the ARC

Fully fund the ARC

Set aside funds through asset

sale or transfer

Issue debt/OPEB

bonds

Not determined OtherPerc

en

t o

f R

esp

on

den

ts T

hat

Have D

on

e a

n O

PE

B V

alu

ati

on

For governments that have done an OPEB valuation, how do you plan to fund your OPEB liability? (Q21)

Note: Percentages do not add to 100% due to multiple applicable responses.

Addressing GASB 45


4%

19%

7%14%

47%

15%

3%

0%

10%

20%

30%

40%

50%

60%

401(h) Account

115 Government

Trust

VEBA General Fund

Other Trust or Agency

Fund

Not Determined

No Answer

Per

cen

t o

f R

esp

on

den

ts P

lan

nin

g t

o P

refu

nd

For governments planning to fully or partially prefund OPEB, what kind of reserve account or trust do you plan to use? (Q22)

Note: Percentages do not add to 100% due to multiple applicable responses.

Addressing GASB 45


8% 11% 7%

2% 3%

6%

2%

61%

0%

10%

20%

30%

40%

50%

60%

70%

None 1-10% 11-20% 21-30% 31-50% 51+% Don't Know Not Intending to Prefund

Pe

rce

nt o

f R

es

po

nd

en

ts P

lan

nin

g t

o P

refu

nd

Assets Set Aside as a Percent of the OPEB Liability

For governments that have done and OPEB valuation, what portion of the OPEB liability has already been set aside? (Q23)

Addressing GASB 45

Key Findings – Health Care Strategies

With regard to controlling health care costs, the most frequently used methods include:►Increasing deductibles and co-pays►Increasing the employees’ share of

premium costs►Implementing wellness programs►Expanding use of generic drugs►Implementing HSAs and HRAs►Negotiating lower costs with current

carriers►Educating employees/retirees to make

better health care decisions.


Health Care Strategies


4% 3% 3%

27%

25%23%

18%

13%

5%

1%2%

3% 3%

13% 13%

10%

17%

8%

7%

2%

0%

10%

20%

30%

40%

50%C

lose p

lan to

new

h

ires

Incre

ase a

ge a

nd

serv

ice

req

uir

em

ents

Pro

rate

ben

efits

based

on

serv

ice

Incre

ase

ded

uctib

les

Incre

ase h

ealth

co

pays

Incre

ase d

rug

co

pays

Incre

ase s

hare

of

pre

miu

m c

ost

s

Incre

ase o

ut-of-

po

cket

lim

its

Cap

em

plo

yer

co

ntr

ibutio

ns

Pro

rate

em

plo

yer

co

ntr

ibutio

ns

based

o

n s

erv

ice

Perc

en

t o

f R

esp

on

den

ts T

hat

Pro

vid

e H

ealt

h C

are

What changes have you implemented or plan to implement to reduce health care costs with regard to plan eligibility and contributions? (Q26)

Implemented in Last 2 Years

Implement in Next 2 Years


6%

1% 2%4%

6%

19%

14%

3% 4%

15%

6%

0%

7%

2% 2% 2%3%

9% 8%

2% 2%

5%

2%1%

0%

10%

20%

30%

40%

50%R

educ

e be

nef

it le

vels

Offe

r Med

icar

e w

rap

aro

und

pla

n

Offe

r Med

icar

e A

dva

nta

ge p

lan

Req

uire

Med

icar

e P

art D

co

vera

ge

Imp

lem

ent d

isea

se

man

agem

ent

initi

ativ

es

Imp

lem

ent w

elln

ess

initi

ativ

es

Imp

lem

ent H

SA

s o

r H

RA

s

Tig

hte

n pr

ovid

er

net

wo

rks

Imp

lem

ent s

peci

al

dru

g n

etw

ork

(Rx

carv

e o

ut)

Exp

and

use

of

gen

eric

dru

gs

Imp

lem

ent d

rug

form

ular

y

Offe

r on

ly

cata

stro

phic

co

vera

ge

Per

cen

t o

f R

esp

on

den

ts T

hat

Pro

vid

e H

ealt

h C

are

What changes have you implemented or plan to implement to reduce health care costs with regard to plan design? (Q28)





4%

2%

18%

9%

15%

3% 2%

11%

7%

12%

0%

10%

20%

30%

40%

50%

Join a health purchasing coalition

Shif t f rom fully-insured to self -insured

Negotiate lower costs with current carrier

Change carrier/heath plan

Educate employees/retirees to make better decisions

Pe

rce

nt

of

Re

sp

on

de

nts

Th

at

Pro

vid

e H

ea

lth

Ca

re

What changes have you implemented or plan to implement to reduce health care costs with regard to health care purchasing? (Q29)





0% 1%2% 2% 1% 1%

4%

1% 1% 1%0% 1% 2% 1%1% 1%

2% 1% 1% 1%

0%

10%

20%

30%

40%

50%E

lim

inate

ben

efit

s fo

r active e

mp

loye

es

Elim

inate

ben

efit

s fo

r p

re-M

ed

icare

retire

es

Elim

inate

ben

efit

s fo

r M

ed

icare

-elig

ible

re

tire

es

Elim

inate

denta

l/vis

ion

ben

efits

for activ

e

em

plo

yees

Elim

inate

denta

l/vis

ion

ben

efits

for earl

y re

tire

es

Elim

inate

denta

l/vis

ion

ben

efits

for M

ed

icare

-elig

ible

retire

es

Req

uir

e retire

es

to p

ay

100%

of f

am

ily

co

vera

ge p

rem

ium

Elim

inate

fam

ily

co

vera

ge fo

r active

em

plo

yees

Elim

inate

fam

ily

co

vera

ge fo

r earl

y re

tire

es

Elim

inate

fam

ily

co

vera

ge fo

r Med

icare-

elig

ible

retire

es

Per

cen

t o

f R

esp

on

den

ts T

hat

Pro

vid

e H

ealt

h C

are

What changes have you implemented or plan to implement to reduce health care costs with regard to benefit elimination? (Q30)




Conclusions

Progress has been made with regard to applying GASB 45 and calculating OPEB costs and liabilities.

Additional efforts are needed to understand OPEB prefunding and the vehicles available.

Additional efforts are also needed to understand the best methods of managing health care costs.


Additional Disclaimers

Circular 230 Notice: Pursuant to regulations issued by the IRS, to the extent this presentation concerns tax matters, it is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) marketing or recommending to another party any tax-related matter addressed within. Each taxpayer should seek advice based on the individual’s circumstances from an independent tax advisor.

This presentation shall not be construed to provide tax advice, legal advice or investment advice.

Readers are cautioned to examine original source materials and to consult with subject matter experts before making decisions related to the subject matter of this presentation.

This presentation expresses the views of the author and does not necessarily express the views of Gabriel, Roeder, Smith & Company.

copyright © 2008 grs – all rights reserved. health and opeb funding strategies: 2009 national...

Documents

oversamples larger governments

health care benefits

local government revenue

area of health care

active employeeshealth

percentage expecting

retireesaddressing gasb

random sample