Public Sector Retiree Health Care Benefits: A View from the American States

By Coggburn, Jerrell D.; Daley, Dennis M. et al. | Public Personnel Management, Summer 2012 | Go to article overview
Save to active project

Public Sector Retiree Health Care Benefits: A View from the American States


Coggburn, Jerrell D., Daley, Dennis M., Kearney, Richard C., Public Personnel Management


Introduction

Public sector benefits, especially those offered by state governments, are widely regarded as being more generous than those available from private sector employers. In a 2007 national survey, for example, almost 60 percent of respondents reported this belief. (1) The same survey found that health care and retirement plans were among the most important job characteristics for respondents. The Pew Center on the States (2) recently reported on empirical studies showing not only that state government benefits are more generous than the private sectors', but also that the gap between the two may be widening. Not surprisingly, governments have successfully used their relatively lucrative benefits--in lieu of large salaries, bonuses, or stock grants--for competitive advantage in the market for human capital. (3)

Such emphasis has led to benefits constituting a higher proportion of total compensation (i.e., pay plus benefits) in the public sector than in the private sector. (4) A major component of government's total compensation and overall human resources strategy (5) is retiree benefits, including pensions and retiree health care. The latter of these is the primary form of other post-employment (non-pension) benefits, or OPEB, offered by government. OPEB represents "payments made directly to former employees or their beneficiaries, or to third parties on their behalf, as compensation for services rendered while they were still active employees." (6)

Public employers have opted to enhance pensions and OPEB over large salary increases for a variety of reasons. Primary among these is the fact that benefit enhancements are less immediate and visible, hence less politically controversial, than salary increases. (7) Also important to these enhancements has been the political and electoral clout of unions and other public employee groups. (8)

In contrast to pensions, which are now largely prefunded (at least partially), governments historically have funded OPEB on a pay-as-you-go (PAYGO) basis, that is, as an annual operating expense. As a result, little attention has been paid to the long-term cost implications of retiree health care commitments. As Peterson (9) notes, this approach once seemed reasonable: 'A few decades ago, when the country was younger and governments were growing, paying a little extra each year to relatively few retirees for health care was no big deal." In recent years, however, this picture has changed dramatically. Specifically, factors like the expected wave of baby boomer retirements, longer life expectancies, increased demands for earlier retirement, and rapid growth in health care costs suggest that OPEB costs can be expected to increase substantially. (10) Despite these concerns, governments' OPEB liabilities have generally gone unreported and unnoticed, that is until fairly recently.

The Government Accounting Standards Board's (GASB) issuance of two new accounting and financial reporting standards, GASB 43 and 45, has effectively removed the cloak from OPEB liabilities. These standards, announced in 2004, require state (and local) governments to report annually on their OPEB liabilities. The goal of these requirements is to improve the transparency of government financial reporting, disclose governments' true total compensation costs, and better align government practices with the private sector. (11)

Early estimates of these liabilities have been substantial. For example, the U.S. General Accountability Office (12) cites estimates of the combined present value of state and local government OPEB liabilities that range from as low as $600 billion to as much as $1.6 trillion. Looking just at the states, Standard & Poor's (13) estimated total OPEB liabilities at about $400 billion (from a low of $52 million in North Dakota to a high of $58 billion in New Jersey), though this figure was based on only 40 states that had completed OPEB valuations at the time.

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
Loading One moment ...
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited article

Public Sector Retiree Health Care Benefits: A View from the American States
Settings

Settings

Typeface
Text size Smaller Larger
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

While we understand printed pages are helpful to our users, this limitation is necessary to help protect our publishers' copyrighted material and prevent its unlawful distribution. We are sorry for any inconvenience.
Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.

Are you sure you want to delete this highlight?