After GASB 45: Solving the Unfunded Liability Problem in Retiree Health Care

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Most states report substantial levels of unfunded retiree health care liabilities. These benefits are consuming increasing proportions of annual payroll costs. High rates of inflation for health services and prescription drugs, an aging public labor force, and increased longevity portend greater demand for health care services at higher costs. Pressures are increasing on these governments to take appropriate actions.

This issue brief categorizes and examines the wide range of policy alternatives for addressing retiree health care liabilities under GASB 45. It discusses advantages and disadvantages within the context of an uncertain economic and policy environment. Key findings include:

  • Nearly all states have created a state-wide health care pool, providing uniform benefit levels for the active workforce and to all retirees residing in the state.
  • Many state plans include teachers and provide a local option for local governments and special districts to participate.
  • In the last 5 years, 10 percent of states have established a plan that limits the state subsidy for future retirees; 34 percent say they are likely to introduce such a plan in the next 5 years.
  • Most states have implemented a variety of cost containment programs:  84 percent have a disease management program and 80 percent require hospital inpatient precertification.
  • The most popular preventive medicine programs in states are: coverage for a retiree’s annual physical exam (72 percent); smoking cessation (70 percent); and wellness newsletters or websites (66 percent).

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