Rising costs, increased longevity and an increasing number of retirees have made it necessary to consider changes to the health care program available to Ohio Public Employees Retirement System members.
The latest update to the program is under way, and one of the biggest changes being contemplated by the OPERS Board of Trustees is whether to eliminate access to coverage for spouses of current and future retirees. The result of this cost-control measure would be to preserve access to health care coverage for members who have contributed to the system.
And as we have mentioned before, OPERS is not required by law to provide health care coverage for its retirees and can only do so after it funds the pension benefit.
Statewide member and stakeholder meetings regarding all of the proposed health care plan changes began in June, and we are soliciting member feedback before the Board makes a final decision this fall. Please visit our website to see the presentations and take our health care survey.
Here are answers to many of the questions we’ve heard most often on spousal health care coverage:
Q: Why is OPERS considering eliminating health care coverage for spouses?
A: Because of rising costs and the increased number of retirees projected over the next 30 years, OPERS must consider significant health care plan changes. At the current rate of spending with no changes to the plan, the OPERS health care fund is predicted to run out of money in 8-14 years. The OPERS Board has been reviewing many options over the past three years and believes that it was important to cover career employees who paid into the system.
The Board is considering providing spouses over the age of 65 with access through a personalized model to select a Medicare Supplement or Medicare Advantage plan, but current and future spouses of retirees would not have access to OPERS health care coverage. A transition period is being considered that would extend access to current spouses for approximately three years with a reduction in the allowance provided by OPERS each year until allowances and access are no longer available.
Q: If spousal health care is eliminated, when will that happen?
A: The earliest it would go into effect would be Jan. 1, 2014. That’s the earliest that the transition period mentioned above would begin. As soon as the Board makes its decision, OPERS will communicate the information to our members.
Q: How many OPERS members carry health insurance on their spouses?
A: About 50,000.
Q: What are the costs to members, and how much does OPERS pay out for this coverage?
A: The full monthly premium for retiree health care coverage for those under 65 is $814; for those over 65 and enrolled in Medicare, our cost is $358 a month. In 2011, OPERS paid out $1.58 billion in health care benefits.
Q: Why not provide access to health care for spouses under the condition that they pay the full premium? That wouldn’t cost OPERS anything.
A: Providing this access actually could cost OPERS more, because it would invite “adverse selection.”
Currently, the full premium cost for OPERS retiree health coverage is $814 per month. Generally, only those people who have medical costs higher than that premium would opt for coverage. Their very high medical claims would drive up cost for the entire plan.
Eventually, the plan would have more high-risk participants, and OPERS would be forced to raise premiums. That would make the plan even less attractive than before. The continual devaluing of the plan eventually would make the plan unsustainable.
Q: Are any other options being considered to keep spousal coverage? What about insuring them separately?
A: Throughout the review process, OPERS has been exploring all options to create the most effective plan for our members. Because spouses would have to pay the entire premium, these plans may be cost prohibitive and won’t have the subsidies that could be available on the health care exchanges that are part of the Affordable Care Act, or national health care reform.
We are working on a way to help spouses navigate toward these exchanges, which are scheduled to be available in 2014. The exchanges are expected to connect people to a variety of plan options, and there should be federal subsidies available for premium payments – those earning up to 400 percent of the poverty level will be eligible for assistance. That means in today’s dollars even couples earning $60,000 a year would get some assistance from the federal government to pay their health care premium, assuming the provisions are implemented.
Q: What about spouses who are over 65 and use the OPERS health care as supplemental coverage?
A: The Board is considering a personalized health care model for Medicare-eligible participants. It would discontinue the current group Humana Medicare Advantage Plan in favor of a personalized model with a monthly allowance to be used to purchase a Medicare plan of the retiree’s choice. Spouses who are over 65 would have access, but no allowance, to this model. Please see the OPERS Health Care Preservation Plan Proposed Changes document in the Special Coverage section of www.opers.org for more information.
Q: Is OPERS self-funded? How does that impact premium rates?
A: OPERS is a self-insured plan, which means we set a self-supporting rate that our actuaries determine is necessary to pay the anticipated claims. The self-supporting rate is like a monthly premium and OPERS and most retirees pay a portion of it. If claims are higher than this self-supporting rate, it costs the plan money.
Typically, we would make up those costs in setting premium rates the following year. We also have to increase rates annually to mirror medical cost trends. This increase has been in the double-digit percentages for many years, although recently has decreased to about 8 percent as the recent recession has prompted Americans to reduce their use of health care services.
Q: Then why haven’t premiums changed in the past two years?
A: Over the past two years OPERS has secured funding from the Early Retirement Reinsurance Program made possible through the national health care reform. During 2011 and 2012 the OPERS Board of Trustees approved using part of the $180 million dollars we received to keep rates steady in 2012 and 2013.
Q: Couldn’t you just adjust rates to cover your costs? Or purchase stop-loss insurance?
A: We are trying to protect the ability to provide coverage for career employees, and keep rates affordable. Continuing to allow spousal coverage, for individuals who have not paid into the system, would push rates up. Stop loss insurance is not recommended for a group as large as we are and would just add more expense.
Our biggest issue is that OPERS pays a portion of the premiums. Most current retirees pay either no premium or only $15-30 a month. Premium payments will need to be adjusted in the health care program as retirees’ health care allowances will be based on age and service. A chart has been developed to help members understand what they will be responsible to pay if the Board adopts all the proposed changes.
Q: What about coverage of spouses for survivors of retirees? Shouldn’t they at least consider the age and income of the survivor?
A: The OPERS Board is reviewing our policy in that regard.
Q: What efforts have been made to work with other retirement systems to share health care costs?
A: Since 2007, OPERS has participated in the Rx Ohio Collaborative, an effort with other Ohio pension funds, The Ohio State University and about 80 other employers to help manage retiree prescription drug benefits. It leverages collective purchasing power for the benefit of current and future health care program participants. For many years the pension systems have worked together on procuring medical vendors as well.
Q: Will my premiums decrease if my spouse is no longer covered?
A: No, because the premiums that retired members pay cover their claims. Spousal premiums cover spousal claims.
Q: Under the proposed personalized model for those in Medicare, if I do not need insurance coverage at all, can I use remaining allowance dollars to pay for my spousal coverage?
A: The board will have to examine this situation as final decisions are made.
Q: Why are these changes to the OPERS Health Care Plan really necessary?
A: To answer that question, it is important to review how the health care fund receives an inflow of dollars.
Health care funding has only two major sources: employer contributions, if available, and investment income. Member contributions can go only into the pension trust fund. However, employer contributions can be used to fund both pension and health care. How much we allocate to each trust fund depends on how well funded we are.
We must use the employer contribution to fund pensions up to the point at which we are able to pay off any unfunded liabilities within 30 years. If we have sufficient funding to reach the 30-year requirement, then we can use a portion of the employer contribution for health care.
The pension trust fund can be used only to pay pension benefits, and the health care trust fund can be used only to pay health care benefits.
As part of our plan to keep the pension fund within the 30-year requirement, OPERS adopted a schedule of declining contributions to health care – ultimately down to zero by 2014. This is why it is so important to pass the legislation in 2012 – so we can restore the health care funding to 4 percent annually.
OPERS’ experience estimates that our health care expenditures will exceed $2 billion within the next 10 years. OPERS expenditures have increased from about $7.6 million per year in 1974 to $1.6 billion in 2011. The combination of these factors creates an ever-increasing gap between revenue sources (investments and employer contributions) and health care expenses. Recovery from this trend means changes must be considered soon.
Health care plan options become very limited without the passage of pension legislation. With the passage of pension legislation, OPERS will be able to re-allocate 4 percent of the employer contribution to help fund health care, as long as our current plan is modified.