Bluefield Daily Telegraph, Bluefield, WV

State News

February 27, 2012

Capital Focus: Other post-employment benefits action shrinks shortfall in W.Va.

CHARLESTON (AP) — West Virginia is already reaping benefits from recent efforts to rein in public retiree health benefit costs, officials say: They expect to shrink the projected funding shortfall by more than $1 billion, and a Wall Street credit rating agency appears ready to praise the state’s handling of its last major liability.

Just a few months ago, the Public Employees Insurance Agency estimated a $10 billion gap between on-hand assets and health insurance coverage promised to teachers and other public workers once they retire. It was one of the largest unfunded liabilities, per-capita, from these non-pension benefits among the states. Such costs are known as other post-employment benefits, or OPEB.

But the agency cut that $10 billion estimate in half late last year, through steps including limiting the annual growth of subsidies that help retirees pay their health premiums. Last week, Gov. Earl Ray Tomblin signed legislation he proposed that embraced several PEIA actions targeting the funding shortfall. Among its other provisions, this measure also dedicates annual state revenues to a special trust fund to cure the liability by 2036.

Such changes have PEIA officials recalculating the remaining funding gap, Executive Director Ted Cheatham said Friday.

“It will be something less than $4 billion,” Cheatham told The Associated Press.

Cheatham also said he’s already been contacted by Moody’s about the changes. He expects the credit rating agency to issue a favorable analysis of West Virginia’s tackling of this major liability. Moody’s upgraded the state’s main bond rating in mid-July 2010 partly because of its efforts to address a pension-related unfunded liability.

“It’s an incredible effort, to have taken that on,” Cheatham said of the OPEB changes. “Considering where we were as a state in terms of a liability, this is a giant leap forward.”

But whether these actions make West Virginia “a national leader on OPEB,” as Tomblin said when he signed the legislation last week, is unclear.

The nonpartisan Center for State and Local Government Excellence studies public retiree benefits issues, and has previously credited West Virginia for its efforts in this area. The state appears to be pursuing the sort of steps the center has identified for addressing health care funding, such as seeking to contain costs and creating a special trust fund. But other states are also taking these actions and at least two, Ohio and Alaska, have larger trust funds, according to the center’s research.

West Virginia’s recent OPEB changes also aren’t without their critics.

Both Tomblin and a majority of legislators in both the Senate and House of Delegates are Democrats. Several House Republicans voted against the OPEB legislation after citing provisions proposed by Cheatham’s agency to reduce costs. These promote generic prescription drugs, focus on enrollees with multiple chronic illnesses, and aim to reduce excessive emergency room and hospital visits, among other steps.

“The intention of those provisions was heart-felt, in the right place,” Cheatham said. “We decided that we at PEIA must do everything we can to do manage medical costs.”

At the same time, some GOP foes of public retiree benefits also call for their abolition. They argue these benefits wrongly encourage state workers to retire before they become eligible for Medicare at age 65. Citing the absence or loss of such benefits in the private sector, these critics also fault the state’s since-ended policies that allowed employees to offset retiree health premiums with unused sick days.

Cheatham said converted sick days play a very small part in the OPEB liability. The state offers supplemental benefits to its retired Medicare enrollees, in addition to coverage beforehand. Cheatham said he does not believe the agency’s finance board has ever discussed ending health coverage completely.

“We do have a statutory requirement that as long as we have a retirement plan, retirees are allowed by law to participate at their own expense,” he said.

Republican-led efforts targeting public employee rights and benefits in states such as Wisconsin, Florida and neighboring Ohio have attracted national headlines. But officials from both parties in a number of states have been reconsidering employee- and retiree-related costs in recent years, according to Ronald Snell, a senior fellow at the National Conference of State Legislatures.  

“The pattern I have observed across the states is to increase eligibility requirements for health insurance, and to transfer more of the cost to employees,” Snell said. “This is bipartisan, (but) not necessarily bipartisan in every state.”

West Virginia’s OPEB steps reflect this trend. Cheatham’s agency has increased co-payments and deductibles, while also increasing premiums for Medicare retirees. It has also ended retiree premium subsidies, starting with employees hired on or after July 1, 2010. For retirees eligible for subsidies, the annual growth of those payments is capped at 3 percent under a December decision by PEIA’s finance board.

The legislation signed last week embraces the eventual subsidy halt but did not include the annual cap. State GOP Chairman Mike Stuart cited the absence of the cap, while also noting that the new law sets aside $5 million annually for possible future use on behalf of post-subsidy hires.

“(The cap) can be changed at any time by the PEIA board,” Stuart said. “We could merely be resetting the table for another run at busting the budget. If you actually read the bill, it is not clear that the state has ended health care subsidies.”

Cheatham said the finance board and a new legislative committee will study potential incentives funded by the $5 million in yearly revenues. He expects the current board to stick with the “very difficult and a very rational decision” to cap subsidy growth.

“If people know going in when they’re hired, they can plan ahead for retirement,” Cheatham said of the OPEB changes. “The favorable thing is we’ve not created a new liability.”

Lawrence Messina covers the statehouse for The Associated Press. Follow him at twitter.com/lmessina

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