Saturday, February 28, 2009

Retiree health benefits in context

At last Wednesday's hearing of the Senate Government Affairs committee concerning public service worker compensation and benefits, there was considerable discussion of the state's long-term liability for health insurance coverage. I watched the hearing on the web with great interest -- as a UNLV faculty member, an officer in the Nevada Faculty Alliance and as a concerned citizen -- and would like to offer a few precisions concerning questions that were raised during the hearing.

Towards the end of the hearing, Senator Raggio inquired of the AFSCME representative how many other states pay for health care insurance for retired public service workers and the witness did not know. The answer, according to the non-partisan Center for State and Local Government Excellence, report on this issue from fall 2008 is that 45 of 50 states pay at least partially for premiums, and 19 states (not including Nevada) pay 100% of premiums for retired public service workers. A chart from the SLGE, reproduced on the website of the Nevada Faculty Alliance, shows the whole list may be consulted here

More generally, concerning the liability associated with this benefit, the SLGE has compiled another chart (again reproduced by the Faculty Alliance, with Nevada high-lighted) which demonstrates that of the 26 states which do not pre-pay their liability, Nevada has the 7th smallest liability in total dollars and the 7th smallest by liability as a % of budget.

If we put the cost of this liability in context of the state's 30-year obligations for its most essential functions -- human services, education and public safety -- as the Faculty Alliance chart here demonstrates, the cost associated with PEBP over 30 years amounts to only 1% of those other functions ($3.6b in the latest AON report to PEBP vs greater than $250b for the other services combined).

In short, Nevada is handling this situation quite well relative to other states. Indeed, among the findings of the SLGE in a series of four different issue briefs it produced on this issue last fall, which offered the following key points among their conclusions

  • "Several states [including Nevada] ...have recently taken actions to pre-fund retiree health care"
  • "[Public] employers must be careful not to enact such draconian benefit reductions that their ability to attract and retain desirable workers suffers."
  • "for many states [including Nevada] ... the reality is that they have small liabilities associated with these plans and there is no cause for alarm."
Finally, it was not mentioned in any detail at the hearing yesterday, but there is of course a structure in place to lower our liability considerably by pre-funding these expenses. In 2007, a law was signed that set aside one per cent of a proposed salary increase for public service workers and instead put that money -- intended to be over $25 million a year -- into a trust fund. (However, the second installment was used instead to help deal with the budget crisis.) The fund still exists, and the state can -- and should -- return to a policy of funding it when money become available. Moreover, under AB 196 of 2007, any revenues over the statutory spending cap in future years can be used for pre-paying the long-term costs of PEBP and PERS.

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