OPEB Liability and Medicare BUDGET, FACILITIES, AND AUDIT COMMITTEE DECEMBER 6, 2016 Presented by: Janice Sawyer, Chief Risk Officer Division of Risk Management & Insurance Services December 6, 2016
OPEB OP B Ref efre resher er o OPEB = Other Post-Employment Benefits (i.e. retiree health benefits, for LAUSD) o Employers conduct an actuarial valuation of their OPEB biennially to: - Accurately quantify future financial liabilities - Assist in budget forecasting - Account for, and report on, liabilities in financial statements 2
OPEB OP B Ref efre resher er o LAUSD’s most recent actuarial valuation for retiree health benefits was completed in December 2015 • AAL (Actuarial Accrued Liability/Past Service Liability) was estimated at $13.6B • Liability increased $2.7B from the prior valuation due to lower expected pre-funding contributions and an upward trend in prescription drug costs • ARC (Annual Required Contribution) was estimated at $1.1B – this is how much we need to contribute annually for the next thirty years to be able to fully fund the liability • Valuation only included current active employees and retirees 3
OPEB OP B Ref efre resher er o If the District continues funding the retiree benefit on a pay-as-you-go basis, the total cost is expected to grow an average of 5.8% annually over the next 30 years. Benefit Payments on a Pay-As-You-Go Basis 1,800 In Millions $1,673 $1,544 1,600 1,400 $1,290 1,200 $946 1,000 800 $658 600 $448 400 $288 200 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044 2045 2046 2047 Current Retirees Future Retirees Current Contribution 4
Med edic icar are Medicare is the Federal health insurance program for people who are 65 or older, and certain younger people with disabilities. 5
Med edic icar are Medicare has three main parts to help cover specific services: o Medicare Part A – Hospitalization o Medicare Part B – Outpatient Care o Medicare Part D – Prescription drug coverage 6
Med edic icar are o When an LAUSD retiree, or the retiree’s spouse or domestic partner, becomes eligible for Medicare, the participant must enroll, and remain enrolled, in Medicare Parts A* and B to maintain District-sponsored medical benefits. o LAUSD offers several plans that cover these services: • Kaiser Senior Advantage • Health Net Seniority Plus • UnitedHealthCare Group Medicare Advantage • Anthem Blue Cross EPO + SilverScript *If eligible for Medicare Part A premium free 7
Med edic icar are o For Kaiser Senior Advantage, Health Net Seniority Plus and UnitedHealthCare, LAUSD pays a significantly reduced premium compared to pre-Medicare plans. o In general, for Anthem Blue Cross EPO, Medicare becomes the primary coverage (covering approximately 80% of allowable expenses) and Anthem becomes the secondary coverage (covering approximately 20% of allowable expenses). 8
OP OPEB B Lia iabil bility ity and d Med edic icar are Medical premiums per individual are higher for pre-Medicare retirees. However, the medical AAL for current retirees is more than 10 times higher for Post-Medicare benefits than for Pre-Medicare benefits due to the greater number of participants. $3.4B Post-Medicare $0.3B Pre-Medicare MEDICAL COSTS Source: Actuarial Valuation Report as of July 1, 2015, AON Hewitt 9
OP OPEB B Lia iabil bility ity and d Med edic icar are Post-Medicare benefits for active employees and current retirees account for almost 70% of the $13.6B overall OPEB liability. Current Active Employees $9.5B • Medical (Pre-Medicare) $2.9B • Medical (Post-Medicare) $6.0B $9.4B (69%) of • Dental $0.5B the $13.6B will go towards paying • Vision $0.1B 1976 - Post-Medicare Current Retirees $4.1B benefits • Medical (Pre-Medicare) $0.3B 1992 - • Medical (Post-Medicare) $3.4B • Dental $0.3B 2007 - 2009 - • Vision $0.1B Today - Total OPEB Liability $13.6B 10
Ways s to to Red educe e OP OPEB B Lia iabil bility ity There are a number of ways to lower OPEB Liability: 1) Premium Sharing 2) Plan Design Changes 3) Pre-funding 4) Eligibility Changes 11
What t We H e Have e Don one e to to R Red educe e Cos osts ts Over the years, the District has taken steps to reduce the OPEB Liability by tightening the eligibility rules. Current employees fall under four rules: Eligibility Rule Hire Dates # of Individuals Liability 1976 - 5-15 Years Service Prior to 6/1/92 14,405 $3.4B TIMELINE 1992 - Rule of 80 6/1/92 - 2/28/07 36,992 $5.6B 2007 - Rule of 80 (+15) 3/1/07 - 3/31/09 4,157 $0.3B 2009 - Rule of 85 ≥ 4/1/09 5,428 $0.2B Today - Total 60,982 $9.5B 12
What t We H e Have e Don one e to to R Red educe e Cos osts ts The Health Benefits Committee has made significant contributions in the following areas: o Employer Group Waiver Plan (EGWP) o Audits (Dependent Eligibility Verification and Medical Claims) o Pharmacy Drug Containment strategies o Health plan contract negotiations 13
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