Premium Changes Cut OPEB in Half
Changes to state premium payments for retired public employees will immediately cut in half the state's near $10 billion unfunded liability for promised future heath-care benefits to retirees, and could completely eliminate the debt over the next three decades, members of the state Public Employees Insurance Agency said Tuesday.
The PEIA Finance Board voted Tuesday to increase premiums for retirees by 9 percent. Board members also approved a plan that will cap the amount the state pays toward premiums for retirees. The state currently provides a $343 subsidy toward premiums for every retiree. The board voted to cap subsides at $343, with a 3 percent increase each year to account for medical inflation.
Those cuts in benefits will push other post-employment benefits, or OPEB, liabilities to $5 billion immediately and eventually completely phase out the debt, according to state Department of Administration Secretary Robert Ferguson.
"That action literally cut OPEB in half," Ferguson said. "This will completely fix OPEB over the next 30 to 40 years. In 30 years from now, and that's figuring the average age people retire and people life cycle out, OPEB will go away completely."
State labor groups, including the American Federation of Teachers-West Virginia, have criticized the proposal, saying increasing premiums for retirees will dissuade many prospective workers from moving to or remaining in West Virginia. The plan would deepen a teacher shortage problem in the state, according to officials with the AFT-WV.
Ferguson said he expects opposition to the changes, which will take effect July 1 of next year.
"It's not a very popular decision," Ferguson said. "I understand the challenges it presents to our hardworking retirees who traditionally do not get a cost-of-living allowance, but as the chief fiduciary of the finance board, we have a requirement to make sure we keep the plan sound and we're using taxpayer dollars wisely."
Ferguson also said the changes will make a significant change to the amount active employees pay toward retiree premiums. At this point, about 70 percent of retiree premiums are funded through costs to active employees. Tuesday's vote to cap subsidy increases at 3 percent each year will, over time, chip away at costs to active employees, Ferguson said.
"The fixing of the 3 percent escalator will alleviate the costs of active employees funding retirees," Ferguson said.
If medical inflation rises higher than 3 percent a year, retirees will have to cover the extra costs, meaning premiums could eventually go up more than 9 percent, Ferguson said. For example, if inflation increases 6 percent next year, the state will cover only 3 percent of that increase. Retirees will have to cover the additional 3 percent.
For months, state officials have been looking for a funding stream to help pay down OPEB liabilities. But Ferguson even if no funding stream is found, changes made Tuesday will get rid of OPEB issues.
Still, Ferguson said the state could face health-care issues as costs rise nationwide.
"We have a national crisis with health care," Ferguson said. "Something has to happen in the next few years or we're going to be in a real problem with health care in this country."