Local officials address long-term costs associated with employee and retiree health care

About 49 percent of the nations’ cities, counties and townships expect less revenue in 2010, and 21 percent expect fewer employees, according to a new survey. About 26 expect increased consolidation of local services.

With shrinking budgets and fewer staff, local officials are taking several approaches to contain long-term costs associated with employee and retiree health care.

The Health and OPEB Funding Strategies: 2009 National Survey of Local Governments report is based on responses from more than 1,500 city, county, township and special district governments across the county randomly polled this year.

“There are significant changes from last year’s study,” said William SaintAmour, executive director of Cobalt Community Research. “We’re seeing belt tightening and growing awareness of benefit costs.”

The report examines local governments’ awareness of and responses to growing health costs and liabilities. It also helps inform public employers about national OPEB accounting requirements and current practices used by local governments to control health care costs.

The study was conducted by Cobalt Community Research (www.cobaltcommunityresearch.org), a leading nonprofit research organization based in Lansing, Michigan.

According to the Cobalt study, approximately 78 percent of the survey respondents provide health care to their employees, with 30 percent also providing health care to retirees. Larger local governments are more likely to provide such benefits.

The study found many local governments are considering one or more health care cost-containment strategies. The most common strategies are:

• Increasing health insurance deductibles and copays
• Increasing the employees’ share of premium costs
• Implementing wellness programs
• Expanding use of generic drugs
• Implementing health savings accounts (HSAs) and health reimbursement arrangements (HRAs)
• Negotiating lower costs with current carriers
• Educating employees/retirees to make better health care decisions.

Few respondents plan to eliminate benefits.

“Clearly, the study shows activity, but many cost-reduction strategies are still untapped,” said SaintAmour. “For example, only 27 percent of respondents increased deductibles over the past two years, only 19 percent implemented wellness programs and only 15 percent expanded the use of generic drugs.”

Much of the report focused on local government awareness and response to the Governmental Accounting Standards Board (GASB) Statement Number 45: Accounting and Financial Reporting by Employers for Postemployment Benefits Other than Pensions (OPEB). This statement creates a national standard for the measurement and disclosure of state and local government OPEB liabilities, especially in the area of health care for retirees. All state and local governments are expected to disclose information about their OPEB costs and liabilities in their annual financial reports for fiscal years beginning in 2009.

Of the local government survey respondents that provide retiree health care, 80 percent indicated they are aware of the GASB 45 requirements. Moreover, about 62 percent report that they have already calculated the liability or the calculation is in process.

For governments who calculated their OPEB liability, 40 percent plan to fully or partially prefund the liability. About 52 percent plan to continue a pay-as-you-go approach.

The study was funded by a coalition of organizations: Gabriel Roeder Smith & Company, the Government Finance Officers Association, the Employee Benefit Research Institute, the International Foundation of Employee Benefit Plans, the Municipal Employees’ Retirement System of Michigan, the National Conference on Public Employee Retirement Systems, and Tegrit Financial Group.