Health Care Rewards for Retirees Continue To Decrease 2
Because the health care rewards for retirement represent the majority of the state’s OPEB obligations, many states have made policy changes to address future obligations. Factors such as hiring date, retirement date or eligibility for the acquisition of rights, including minimum age and minimum year of service requirements, are now being used by states to vary or limit retirement health care rewards.
In total, from 2010 till 2013, many states observed that their OPEB liabilities reduced by 10 percent from $627 billion after adjustments to inflation. Although this may seem like a contradiction, the reduction are as a result of a decline in the growth of cost of health care along with modified benefit aimed at reducing cost.To see a state as an example, the recent California budget revealed that health care rewards for retirees are costing the state more than $ 2 billion a year for an 80 percent increase over the past 10 years. Although the situation changed recently, California was previously one of 18 states that had nothing reserved to insure the costs of health care rewards for future retirees of $ 80.3 billion.
It should be noted that retirement health care policies are generally funded by the policy’s sponsors on a “pay-per-use” basis, which means that funds to pay current and future obligations for health care are collected from current assets and are not reserved in advance. This changes hugely from pension policies governed by ERISA, which are subject to funding guidelines.In a reaction to unfunded OPEB liability of California, employees and the state are now making payment for funds for the costs of health care rewards for future retirees. The state also has a matching $88 million in contributions from employees and paying an extra $240 million to pre-finance future costs of health care retirement rewards. The modifications are affecting retirees, and also state and private employers.
In general, retirement health care rewards which are employer-based, which were once important to supplement Medicare advantage plans for retired seniors, continue to decline. The potential impact of eroding employer-based health care retirement rewards.It is likely that many baby boomers who are currently insured by retiree medical policies and policy to rely on future medical rewards paid by the employer, are disappointed to learn that these benefit policies can be changed or canceled.
Benefit policies governed by ERISA generally contain a “rights reserve” provision that allows the policy sponsor to change or terminate all or part of the policy. Many private and state employers are reducing or terminating health rewards for retirees due to the increase in the cost of insurance premiums, the increase in health care costs and the increase in longevity. Since the early 1990s, there have been many cases in which unexpected changes in pensions and post-employment medical rewards have resulted in lawsuits. In general, the key issue is the reservation of rights language and / or collective agreement language for employees who were insured by a union contract that referred to medical rewards for retirees.