Rising health care costs hamper pension
OPERS officials say cuts to benefits may be only way coverage continues.
COLUMBUS — Ohio’s largest public pension system is considering cuts to health care benefits for thousands of current and future retirees as a way to shore up and extend coverage for years to come.
Trustees with the Ohio Public Employees Retirement System could vote as early as this week on health care changes that would go into effect Jan. 1, 2022.
Unless changes are made,
OPERS projects that its $11.3 billion health care fund will run out of money by 2030.
The pension system is funded by employee and employer contributions and investment returns. OPERS used to earmark a chunk of employer contributions for retiree health care but stopped doing so in 2018. Instead, all the contributions are plowed into pension benefits, which take priority over health care coverage.
OPE R S, which repres e nts most of the county and state workers in Ohio, has provided health care coverage to retirees since 1974.
“Our pension funding has to be solid in order for health care to really be viable. We continue to tell people that,” said OPERS Executive Director Karen Carraher. “The pension is statutory. Health care is a discretionary program. We don’t want to drop it but it can be dropped.”
Once the pension side of the system is on better footing, OPERS could resume putting money into the health care fund. But officials don’t expect that to happen until 2034.
To help bolster the pension side, OPERS trustees voted in September to eliminate the cost of living allowance in 2022 and 2023 for all retirees and delay the COLA for two years for all new retir- ees. That plan requires a law change — and legislation has yet to be introduced in the General Assembly.
In the meantime, OPERS is relying on investment income to generate the cash to cover about $900 million in health care costs each year and debating options for cutting back on health care benefits.
A plan recommended by pension system staff calls for sweeping changes that would impact nearly everyone in the OPERS system — 213,000 current retirees and 304,000 active workers.
For retirees who are Medi- care-eligible — ages 65 and older — the monthly allowance provided by OPERS to offset health care costs would be reduced. The allowance currently ranges from $225 to $405, depending on age, years of service and retirement date. Staff is recom- mending lowering the allowance so that it’d range from $178 to $315.
Pre-65-year-old retirees are currently offered an OPERS group plan, where OPERS picks up between 51% to 90% of the cost. On average, retir- ees are paying $354 a month.
The OPERS group plan would be eliminated. Replac- ing it would be a monthly stipend for retirees to find coverage on the open market. Future retirees would have to work 10 to 12 years longer to be eligible for the new stipend.
Premiums for open mar- ket coverage are expected to vary largely based on location, whether the retiree is eligible for subsidies under the Affordable Care Act, and whether the retiree is a tobacco user.
“We understand that health care is an important aspect of retirement for our mem- bers and we are committed to doing everything that we can but obviously ... we are facing the same problems as the nation with increas- ing health care costs. I think this program that we’re trying to put in place is pretty fair and balanced. And I think it’s pretty responsive to the needs of our members and the organization,” Carraher said.
OPERS has $94 billion in assets for pension benefits and serves 1.14 million people.
All five of Ohio’s public pen- sion systems have been grappling with stretching dwin- dling health care dollars while continuing to offer some level of coverage. Driving the crisis is higher drug prices, spiraling medical costs, people living longer and a volatile stock market.
Actuaries are recommending that pension systems reduce their assumed rate of returns — how much they expect to earn on aver- age each year on their invest- ment portfolios. When the assumed rates are lowered, unfunded liabilities balloon, forcing the systems to consider pension benefit cuts,
COLA freezes or reduced health care offerings.
“Something needs to give,” said state Rep. Rick Carfagna, R-Westerville, vice chairman of the Ohio Retirement Study Council. He added, “Our responsibility first and fore- most is to protect the pension systems solvencies overall.”
In 2017, OPERS had the rosiest projection among the five pension systems, saying its health care fund would last indefinitely. That projection came shortly after OPERS enacted massive changes in health care coverage — and for some, huge price increases.
At the time, OPERS planned to earmark 4% of employer contributions for the health care fund. That didn’t materi- alize because OPERS needed to plow more money into the pension side of the system.
Aristotle Hutras, former director of the Ohio Retire- ment Study Committee, said the five public pension systems should be advocating for the federal Affordable Care Act. Health care costs are so volatile that pension systems cannot predict future costs, making it difficult to design retiree coverage for the long haul, he said.
“It can be catastrophic for families. You can’t fix everything by just taking an aspirin. Without affordable health care, where do you end up?” Hutras said.
He added that Ohio should discuss increasing the percentage of public worker wages that employers contribute to the pension systems — a move that would require a law change — as a way to continue providing retiree health care. Though it’d be unpopular with taxpayers, Hutras said “I think it should be part of the discussion.”
Carraher said OPERS board members want to explore that option but she acknowledged that lawmakers and taxpayers reject the idea. She pegs the chances of getting a bump in the employer contribution rate at “small to nil.”
Geoff Hetrick, chief executive of the Public Employee Retirees Inc., said his members “are not happy but the majority of them understand the combination of the COLA freeze in conjunction with the health care changes is the best formula to provide a pathway to retain health care going forward. I have to keep reminding members: health care is not a guarantee.”