OPERS, which represents 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 retirees. That plan requires a law change — and legislation has yet to be introduced in the General Assembly.
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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 Medicare-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 recommending 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 percent to 90 percent of the cost. On average, retirees are paying $354 a month.
The OPERS group plan would be eliminated. Replacing 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 market 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.
OPERS Executive Director Karen Carraher.
OPERS Executive Director Karen Carraher.
“We understand that health care is an important aspect of retirement for our members and we are committed to doing everything that we can but obviously … we are facing the same problems as the nation with increasing 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.
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OPERS has $94 billion in assets for pension benefits and serves 1.14 million people.
All five of Ohio’s public pension systems have been grappling with stretching dwindling 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 average each year on their investment 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 foremost 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 percent of employer contributions for the health care fund. That didn’t materialize because OPERS needed to plow more money into the pension side of the system.
Aristotle Hutras, former director of the Ohio Retirement 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.”
• For retirees who are Medicare-eligible — ages 65 and older — the monthly allowance provided by OPERS to offset health care costs would be reduced from a range of $225 to $405 to $178 to $315, depending on age, years of service and retirement date.
• The OPERS group plan offered to pre-65-year-old retirees, which picks up 51 percent to 90 percent of health care costs, would be eliminated. It would be replaced with 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.
Source: Ohio Public Employees Retirement System