Retiree Health Plans in the Public Sector

Retiree Health Plans in the Public Sector

Is There a Funding Crisis?

Robert L. Clark and Melinda Sandler Morrill

While retiree health plans are a dying benefit in the private sector, all US states and many local governments extend health insurance coverage to their retired employees. This book is the first to thoroughly examine public sector health insurance plans. Retiree Health Plans in the Public Sector provides a detailed description of the current plans offered and compares how they vary across states.

Chapter 5: Explaining the Differences in Financial Status of State Retiree Health Plans

Robert L. Clark and Melinda Sandler Morrill

Subjects: economics and finance, public sector economics, social policy and sociology, ageing


The GASB 45 actuarial statements show dramatic differences across states in the unfunded liabilities associated with retiree health plans for state employees. How can these differences be explained? While our analysis of the GASB 45 statements in Chapter 4 provided some insights into the factors that determine the financial status of these plans, this chapter focuses more directly on trying to explain why certain states have large UAALs in the tens of billions of dollars while the unfunded liabilities of many other states are much smaller.1 As discussed in Chapter 4, in general the consulting actuaries have used the same basic methodology to determine future costs of providing health insurance to retirees. For example, one important assumption is the rate of medical care inflation. While the health care inflation assumptions used in the reports are very optimistic, they are basically the same in the various reports. Thus, this important assumption does not explain differences in UAALs across the states. The analysis in Chapter 4 showed that another important assumption is the choice of a discount rate to determine the present value of the promised health insurance. Our review of the GASB 45 statements did show differences in the discount rate that explain some of the variation in state UAALs; however, most of the states base their actuarial analysis on discount rates between 4.0 and 5.0 percent. This rather narrow band used by most of the states implies that the use of different discount rates is responsible for only a small...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information