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OPERS Proposed Health Care Changes
Ohio Library CouncilJuly 12, 2012
Jason Davis
Health Care Communications Specialist
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Health Care Timeline
2010, October –Board is provided foundational information regarding OPERS Health Care
2011, January –Board revisits HCPP Guiding Principles
2012, May - August –OPERS staff shares health care plan options with stakeholders and solicits feedback
2011, February -2012, May –OPERS Board and staff exploreHealth Care Funding Framework and options for eligibility, allowance and plan sponsorship
2012, Fall –Anticipated Board decision on health care changes
2014-2015, Expected start date for health care changes
Pension Fund
Health Care Fund
Pension Benefit Payments
InvestmentIncome
Investment Income
Health Care Coverage Payments
A Picture of the Equation
Member Contributions
Employer Contributions
30 year funding
Challenges
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Pension Health Care Total
2009 8.5% 5.5% 14.0%
2010 9.0% 5.0% 14.0%
2011 10.0% 4.0% 14.0%
2012 10.0% 4.0% 14.0%
2013 13.0% 1.0% 14.0%
2014 and beyond 14.0% 0.0% 14.0%
Employer Contribution Rate Allocation Changes To Retain 30-Year Funding
* Local/State rates used as example
Challenges
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• Volatile Investment Market
There is a graph from the plan B presentation that Debbie will forward and will be inserted here.
*2011 is preliminary and unaudited.
ChallengesChallengesInvestment & Economic Environment
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Increasing National Health Care Expenditures
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
1993 2005 2006 2007* 2008* 2012* 2017*
Hospital Care Professional Services Prescription Drug
NHE as a% of GDP 13.7% 15.9% 16.0% 16.3%* 16.6%* 17.7%* 19.5%*
Source: Health Affairs – Web Exclusive, February 26, 2008, “Health Spending Projections Through 2017: The Baby-Boom Generation is Coming to Medicare;” (Centers for Medicare and Medicaid Services, Office of the Actuary, National Health Statistics Group; and U.S. Department of Commerce; Bureau of Economic Analysis and Bureau of the Census.) Prescription Drug/ Financial last updated 6/08
Annu
al S
pend
(in
Billio
ns)
$912.6
$1,973.3 $2,105.5 $2,245.6 $2,394.3
$3,097.8
$4,277.1
Challenges Increases in Expenditures
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Increasing OPERS Health Care Expenditures
Challenges Increases in Expenditures
0
200
400
600
800
1000
1200
1400
1600
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Millions
Health Care Payments
$7.6 $41.1
$117.1
$219.1$302.5
$442.3
$696.6
$1,043.7
$1,242.8
$1.390.7
$1,580.3
8
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
Number of Retirees
Number of Retirees
Actual and Projected OPERS Retiree Population
Challenges Increases Retiree Population
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60657075808590
1960 1970 1980 1990 2000 2009
Age
Year
Female Male Average
Consequently, years in retirement continue to grow resulting in additional strain on pension and health care funding.
Challenges Retirees Living Longer
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• Only employer contributions can be used to fund health care but only after pension obligations are satisfied.
• Employer contribution rates used to fund health care have historically ranged between 4-7%.
• The 2012 rate is set at 4% and is scheduled to be reduced to 1% and 0% in 2013 and 2014 respectively without the passage of pending pension legislation
• OPERS is required to meet its pension obligation. It is not statutorily required to provide health care coverage.
Health Care Plan Changes Funding Revisited
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Expenses will Continue to Outpace ContributionsProjected Contributions & Health Care Expenditures
Health Care Plan Changes Funding Revisited
2007-11 actual 2012-17 projected (6.5% return)(2011 numbers are preliminary and unaudited)
-4
-3
-2
-1
0
1
2
3
4
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Investment Returns
Employer Contributions
Expenses
Health Care Plan Changes Without Legislation
Without Pension Legislation
Path 1 - Maintaining current health care
plan and spend down fund in 8
years
Path 2 - Change health care to only what is required by
law
Without passing legislation in 2012 there are 2 paths that could be pursued:
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11.5 11.410.8
9.9
8.9
7.7
6.4
4.8
3.1
1.1
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Projected Value of OPERS Health Care Fund WITHOUT Pension Legislation ($billions)
Projected (using actual contribution schedule and 6.7% investment return)
No more money to pay for health care in just 8 years
Health Care Plan Changes Without Legislation
Path 1 No pension legislation, keep current health care plan
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Without passage of pension legislation there will be limited funding for Health Care as early as 2014
• Without changes OPERS would spend the entire existing trust on current retirees and it would only last for 8 years.
• To preserve the trust with no contributions. OPERS must design a health care program based on just the investment earnings.
• This path would require very drastic reductions to the current health care plan – cutting the program by nearly 70%.
• The changes would be severe as spending is reduced from $1.6 billion dollars a year to approximately $500 million.
Health Care Plan Changes Without Legislation
Path 2 No pension legislation, change health care plan to only what is required by law.
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In the absence of pension legislation, the most OPERS can do is provide limited coverage
Health Care Plan Changes Without Legislation
• Coverage that is required by law includes:• Medicare Part B Reimbursement
– Provides $96.40 a month to those with Medicare as reimbursement for their Medicare Part B Premium
• Medicare Part A equivalent coverage– Provides hospitalization coverage for retirees who
were hired before 1986 and are not eligible for Medicare Part A (under 7,000 people)
• Limiting coverage to what is required by law would have an immediate adverse affect on the majority of OPERS current and future retirees
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With Pension Legislation
Path 1 - Keep current health care
plan and spend down fund in 14
years
Path 2 – Adopt Health Care
Preservation Plan changes
Health Care Plan Changes With Legislation
With legislation passing in 2012 there are two paths that could be pursued:
11.5 11.4 11.3 11.1 10.810.4
9.99.4
8.78.0
7.16.2
5.1
4.0
2.7
1.2
0.0 0.0 0.0 0.0$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
2030
Projected Value of OPERS Health Care Fund WITH Pension Legislation ($billions)
Projected (using proposed post-APD contribution schedule of 4% per year and 6.7% investmentreturn)
2026 No more money to pay for health care in 14 years if we keep the same level of health care coverage.
Health Care Plan Changes With Legislation
Path 1 Pension legislation, keep current health care plan
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• The percentage of the employer contribution needed to fund our current health care program is 7.6%
• The 7.6% needed to maintain the health care program is not sustainable given the current challenges
• With passage of pension legislation, OPERS is planning to allocate 4% of the employer contribution to fund health care
• OPERS needs to modify the health care plan to match with the 4% funds. This requires significant changes to the health care program.
• We will be seeking stakeholder feedback on the proposed changes
Health Care Plan Changes With Legislation
Path 2 Pension legislation, adopt Health Care Preservation Plan
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With legislation:OPERS’s objective is to develop a health care program that can be funded with 4% of payroll
Health Care Plan Changes With Legislation
• OPERS believes that such a plan can be developed and sustained at that level to preserve access to health care for career employees upon retirement
• The Board is currently deliberating on what the new plan will cover. We will be seeking stakeholder input over the summer
• The Board plans to have a final decision about the plan by this fall
• The following outlines some of the components being considered
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Health Care EligibilityCurrent
Health Care EligibilityBoard Discussions
Retirement age with Health CareNo Minimum Retiree Age
Minimum Retiree Age 60 (future retirees)
Years of ServiceAccess with 10 years of service credit
Access with 20 years of service credit (future retirees) (with 30 or more years of service, any age)
Service CreditHealth care eligibility determined by majority of service credit types with
few limitations. Allowance determined using all service credit types.
Health care eligibility and allowance determined by equal service credit types to include
contributing, ORS and restored service credit only
Health Care Plan Changes With Legislation
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Health Care EligibilityCurrent
Health Care EligibilityBoard Discussions
Spouses without Medicare Access to health care with allowance
ranging from 50-90% of retiree’s allowance. Access but no allowance for
spouses under age 55.
No allowance or access for spousesunder age 65
(current and future retirees)
Spouses with Medicare Access to health care with allowance
ranging from 50-90% of retiree’s allowance
Access to health care with no allowance for spouses covered
under Medicare (current and future retirees)
Dependent Children Access to health care with allowance
ranging from 50-90% of retiree’s allowance
Access to health care with allowance equal to 50% of retireesallowance if retiree has 20 years or
moreDisability Recipients
Access to health care with allowance once approved for disability retirement
Access to health care with allowance limited to first five years of disability retirement unless approved
for federal program
Health Care Plan Changes With Legislation
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Health Care Plan Changes With Legislation
Health Care CostsCurrent
Health Care CostsBoard Discussions
Retiree AllowanceBased on years of service
and first eligibility
Restructured allowance based on years of service
and age(current and future retirees)
Retiree Allowance RangeMinimum allowance 25%
Maximum allowance 100%
Minimum allowance 51%Maximum allowance 90%(Current retirees at or above 75%
will not receive less than 75%)
Medicare B reimbursement
Reimbursed based on board discretion not to fall below $96.40 (legislated)
Reduce or eliminate Medicare B reimbursement(current and future retirees)
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Health Care Plan Changes With Legislation
Health Care PlanSponsorship
Current
Health Care PlanSponsorship
Board DiscussionsNon-Medicare Retiree
OPERS sponsors medical and pharmacy plan
OPERS will continue to sponsor a medical and pharmacy plan (current and future retirees)
Medicare RetireeOPERS provides Medicare
Advantage plan (Med C) and Medicare Prescription Drug
Plan (Med D) plan
Provide access to personalized plans through individual market
assisted by licensed benefit advisor
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Personalized Plan Option 1 Personalized Plan Option 2
Medicare Advantage with Pharmacy (MAPD) $70.00
Medicare Supplement with Pharmacy $150.00
Medicare B Premium $99.90 Medicare B Premium $99.90
Total $169.90 Total $249.90
75% Allowance $269.00 75% Allowance $269.00
Remaining $99.10 Remaining $19.10
Health Care Plan Changes With Legislation
MAPD costs range from $0 to $74 a monthMed Sup + PDP range from $61 - $265 a month
How a Personalized Plan can help a retiree who has a $269*a month allowance
*Based on the 2012 Medicare rate of $358/month x 75% allowance
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Reminder
• The OPERS Board is expected to finalize these health care changes by Fall of 2012
• These changes will be implemented no earlier than 2014 & most changes will have a three year transition
• Keep up-to-date with PERSpective, the OPERS blog• Access OPERS Facebook and Twitter sites through
opers.org• Access “Special Coverage” section of opers.org for
more detail regarding changes • Read your newsletters
Important Information What This Means to YOU
Stay Informed
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