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When Retiree Benefits and Obamacare Collide

Oct. 1, 2013 is a focus of increasing anxiety in this country. That’s the date when enrollments begin for the federally run health insurance exchanges, created under the Affordable Care Act (ACA). No one really knows what to expect, but it could be far worse than advertised —and for a reason that has more to do with the federal deficit than health care.

What’s anticipated is unsettling enough. President Obama speaks of inevitable “glitches and bumps” in the implementation. Senate Finance Committee Chairman Max Baucus (D-Mont.) sees the possibility of “a huge train wreck” if the public isn’t adequately educated and prepared. Supporters of the ACA, especially Democrats in the Congress, are nervous about taking the blame if the exchanges don’t unfold as intended.

All these worries are legitimate. The American people, already burdened by a numbingly complex, inefficient and inequitable tax system, now wonder if an increasingly government-run health care system will follow suit. Many are concerned that some employers will dump their current health care plans and pay the relatively modest fine. There’s also worry that young people will opt out of the exchanges (preferring to pay the small penalty), leaving the exchanges with a disproportionately older and sicker pool. Then there’s the very real uncertainty surrounding the ACA’s ultimate cost — illustrated by the impact of Medicare alone, which the Office of the Chief Actuary of Medicare estimates could cost cost $10 trillion more than claimed.

Amid all these concerns and speculations, almost no attention is being paid to the opportunity that the ACA’s insurance exchanges could represent for state and local governments’ retiree health care programs. It’s time to think about it because the consequences could be far-reaching.

States in a deep hole

We already know that many state and local governments are in a financial hole that keeps getting deeper. A newly released report by the U.S. Government Accountability Office (GAO) makes clear that, absent significant reforms, the fiscal picture for most state and local governments will steadily worsen through 2060. A main cause, in addition to Medicaid, is the cost of health care for state and local government retirees. These largely unfunded obligations are similar to the pressures on the federal government to fulfill its unrealistic Medicare promises.

But there is a critical difference when it comes to how state and local governments can approach these obligations compared to the federal government. State and local governments can’t print money and typically have “balanced budget” requirements. More often than not, retiree health benefits are not guaranteed under state constitutions, are not insured, and are not protected by federal law, which means the systems in place can be changed.

States that offer extremely generous health benefits for government retirees, and which have little to no pre-funding for those benefits, could choose to move their retirees into the Affordable Care Act’s new exchanges. State and local governments would likely continue to contribute by paying some premium support to individual retirees for healthcare, but the federal government and/or participants in the exchanges would pick up much of the tab. For these states, the exchanges offer a chance to shore up their finances and relieve state taxpayers of some of the looming burden of financing all those retirees. It could be a huge opportunity for states and localities in desperate need of fixing their long-term finances, and one that they should seriously consider in the coming months.

Reward for irresponsibility

The impact doesn’t end with a collection of states relieved to have better balance sheets and financial positions. What does it mean for taxpayers?

It’s not as if taxpayers in those states will suddenly be free of the financial burden of providing retiree health care benefits. A significant portion of the tab would be passed on to the federal government. But the overall tax burden will shift, and in ways that Americans in other more fiscally responsible states may not appreciate. Since the exchanges are federally sponsored, much of their cost will ultimately be shared among all the nation’s taxpayers. So residents in those states who push retirees onto the exchanges will get to off-load some of their financial burden to the rest of us.

Moreover, the cost of the exchanges could grow precisely because more retirees are joining the pool. And if young people forego the exchanges in large numbers, it will put upward pressure on the total costs and related insurance premiums over time.

So the impact of the insurance exchanges could be good news for some state and local governments and residents, while not so good news for the rest of us. As with so many major federal initiatives, the outcomes are far from certain. That is particularly the case with the Affordable Care Act, which rivals some of the New Deal legislation in its complexity. At the very least, however, we should recognize both the risks and opportunities — including what could unfold at every level of government — and be prepared for the results.

David M. Walker is former U.S. Comptroller General and CEO of the Comeback America Initiative. This post originally appeared in USA Today on June 6, 2013.

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16 replies »

  1. On Sunday Burham suggested his words were taken outONSet the cost of a $176view about $257 and potential clients will switch away. Once you’re it real that the rather simple gladness in a bestassumed competence are being dropped

  2. It is always funny when people who would call themselves “Defenders of The Free Market” whine about freer markets.

    Young people not signing up to subsidize the extreme measures old people use to stay alive another week or day? Gee, sounds like a freer market.

    Individual states pushing their workers & retirees to pool together and buy more of their insurance for themselves, to the level they individually think they need? Gee, sounds like a freer market.

    Where’s the cheese? I’ve already got the whine.

  3. Interesting how the people that wrote the law exempted themselves from the law. America is truly a class society now. We only have our fellow Americans for the disaster that’s coming our way.

  4. Ms. Culick, 52, is one of several hundred thousand people left behind by South Carolina’s refusal to expand Medicaid under President Obama’s health care law – a choice made by about half the states.
    “If I could get Medicaid, I’d be the happiest person on earth,” Ms. Culick said.

    You might think this is a cherry-picked example. It isn’t. I’ve found that roughly four million Americans suffer the dual challenge of being uninsured and suffering from disability or chronic illness. Many live in poverty, and they need basic Medicaid coverage. Unfortunately, many live in red states which adamantly refuse to accept virtually free federal funds to help.

    And from the other link:
    Each state regulates its own unique Medicaid program and sets specific age, INCOME and resource requirements for applicants.

    ~~~~~~~~~~~~~~~~~~~~~~~~

    The days and nights of an Internet Troll must be dreary, indeed. And such a waste of resources for someone with writing skills and access to the Web, wasting creative energy in an obscure comment thread — only to watch it sink to oblivion in the deepest data swamp ever created by man, the archives of the World Wide Web.
    Get a life.

  5. “The federal deficit is at its LOWEST point in two decades!”

    Really? http://www.usdebtclock.org/

    “We already know it will be better insurance than they have been getting – e.g. preventive care, no lifetime or pre ex limits.”

    “We”/you do not know this. Most plan and insureds have had preventive care coverage and no limits (or very high), and because of HIPAA have not had pre -ex issues. Why would there be any grumblings from unions and others about Cadillac tax if unless there are very rich plans out there?

    “insurance will be cheaper for many”

    Please define many. Please do not include any of the 30 plus million not insured now (i.e. not paying anything).

  6. “so a bunch of states decided to let their poorest and most vulnerable populations take a hit by exercising that option. ”

    Wouldn’t the poorest and most vulnerable be those at or below 100% of FPL, which are not directly affected at all?

  7. You lost me in the very first paragraph! The federal deficit is at its LOWEST point in two decades! Then you say “No one knows what to expect” but then go on to predict it could be worse than expected. Given your level of expectations, I don’t see how it could possibly be worse.
    I predict – and again “no one really knows” — that the exchanges will be a big hit and despite some minor glitches, insurance will be cheaper for many. We already know it will be better insurance than they have been getting – e.g. preventive care, no lifetime or pre ex limits.

  8. While focusing on retirement plan we need to go for a better health care retirement plan also that consists of several factors such as better health insurance; therefore we need to go for Obamacare which is specialized in providing beneficial health care system and employers are getting better health insurance system and health care system.

  9. Mr. Walker has an enviable record for calling out topics that matter. Unfortunately, he misses the boat fairly badly with this post.

    By failing to distingtuish between early retirees and regular (Medicare-eligible) retirees, he has muddied the waters unnecessarily. And unless states are prepared to literally default on their post-retirement liabilities, the typical early retiree…which is where the “action” is here…will not have legal access to the new exchanges.

    Yes, states can further distance themselves from unrealistic promises to FUTURE retirees. But as far as I know, the price tag for the Affordable Care Act includes the effects of continuing employer withdrawal. Mr. Walker has no special reason to use doom-and-gloom pronouncements in this environment.

  10. Forbes sez (May 24, 2013):

    Keep in mind that the entire idea of the exchanges is to require health insurance companies to compete openly with one another by offering identical coverage programs in the three created classes—each offering insurance coverage that actually delivers meaningful protection to customers—and then openly disclosing the price each insurance company will charge for that policy. Thus, shoppers can clearly see which company has the best price on an apples-to-apples basis.

    For all the negative chatter about how including older and sicker Americans in the health insurance pools would drive up the price for younger participants in the pool less likely to be ill, what we are now seeing in states like California is that the desire on the part of the health insurance companies to increase market share—thanks to the large influx of customers as a result of Obamacare—is driving prices downward.

    http://qote.me/MDwcdP

  11. Mr. Walker, I began reading this post with an open mind but when I came to the phrase “government-run health care system” in the third paragraph I got a bad attitude. By now we have all read plenty of fear-generating rhetoric about ACA so that part is nothing new. Bitch-slapping legislation you don’t like has become mainstream in the cesspool of Washington politics. So that part comes as no surprise.

    But to address what appears to be the main point, the collision between retiree benefits and the new law has virtually nothing to do with healthcare and everything to do with financial affairs. Retirement plans that promise health care are making empty promises, whether public or private, if those plans are not funded. And that lack of funding, not any new legislation, is the core of the problem. If the money isn’t there, the promise is moot. And as everyone should know by now retirement benefits all over the place are not properly funded. And that is not a state and local government issue alone. Private companies have been going through bankruptcy for years — before Obamacare came along, by the way — as the result of employee-paid retirement arrangements (IRAs, Roths, 401k, 403b, SEP, etc.) made old-fashioned pension plans obsolete.

    The exchanges are not “federally run” either. The new law is a federal statute, of course. But the running of the exchanges is a state option, and among the various choices available is non-profit cooperatives, hardly a “federally run” idea. (http://qote.me/62bFMj) but organized in a way that will insure compliance with uniform standards, free of bait-and-switch offers and exceptions hidden in mouseprint (pre-existing conditions, annual caps, lifetime caps) that typify many private insurance plans.

    Thanks to the Court the Medicaid portion of the law became optional for the states, so a bunch of states decided to let their poorest and most vulnerable populations take a hit by exercising that option. I notice Arizona’s governor, despite any misgivings she may have had with the president, has taken a strong stand in favor of the Medicaid option. Apparently she and a few others are smart enough to know that the monetary benefits of red-state socialism outweigh the political benefits of standing in opposition (or as my mother said, cutting off your nose to spite your face).

    There’s train wreck sure enough But the wreck is not coming. It is here. And it was here before the Affordable Care Act was ever on the table. As a large and growing population has found out, thanks to the growth of high deductible insurance policies, the prices that Americans have been paying for medical care are all over the map. And the more consumers get involved with the prices appearing on their bills, the quicker the costs will start to make sense.

    The exchanges are what many call “managed competition” not “federally run health care.” It remains to be seen how many insurance companies and/or health care providers (and no, they are not the same) will rise to the challenge of competing with one another. Competition has not been part of the culture in the past. But I, for one, remain hopeful that over the next few years the landscape will see more affordable alternatives than the blank-check systems that have financially crippled not only the retirement plans you wrote about, but virtually anyone without deep pockets.

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