by Michelle Saxton
Daily Mail Capitol Reporter

CHARLESTON, W.Va. -- West Virginia subsidizes on average about 72 percent of costs for retired public employees' health insurance benefits, and a state finance board has had to rethink that coverage after having to report an existing unfunded liability for what that will cost down the road - now $7 billion and growing.

Cities, counties and the state are required by the national Governmental Accounting Standards Board to include non-pension retirement liabilities in financial statements. Those other post-employment benefits liabilities are referred to as OPEB and are a major concern for governmental entities.

While retiree rates and subsidies in West Virginia differ based on age, years of service and other factors, the average retiree pays about 28 percent of health care costs under the Public Employees Insurance Agency, PEIA Director Ted Cheatham said Tuesday. The rest is being subsidized for them.

"That's what we're talking about," Cheatham said. "That's what's generating the OPEB liability."

PEIA's finance board moved to act on that liability last week by voting to eliminate the retiree premium subsidy for new employees hired on or after January 1, 2010 - a decision met with immediate criticism and threats of legal action by unions for teachers and other public employees.

"At the same time the county boards of education are trying to sue us for making them report this unfunded liability," Cheatham said.

The vote has no effect on current retirees or current workers who will retire, Cheatham said.

Public employees hired in 2010 and beyond will have similar coverage to other active policyholders before retirement. But upon retirement the new hires will pay the full cost of their premiums, whereas current workers who retire still will have premium costs subsidized, he said. Rates for        deductibles and maximum out-of-pocket costs will be similar for new and current employees upon retirement.

"It does not affect current employees at all or current retirees," Cheatham said. "It doesn't mean that future retirees...cannot participate in the health insurance program with PEIA. They have to pay 100 percent of whatever the cost of that insurance is at (retirement)."

"The only thing that's going to be different is the premium level," Cheatham said.

Active employee contribution rates for new hires in 2010 also will be similar.

"Regardless of the hire rate, active employees of the state of West Virginia will have the same benefit structure and same contribution," Cheatham said.

PEIA was working to determine actual cost figures for employees hired after January 1, 2010. 

The subsidy is not a universal 72 percent subsidy on each tier of coverage, but rather it is over all tiers, based on the premium by tier and the number of policyholders covered in each tier, said Diane Holley, communications director for the state Department of Administration.

American Federation of Teachers-West Virginia President Judy Hale has expressed concerns that the change might make it more difficult to recruit and retain new teachers and that a decision on how to address the unfunded liability should have included more stakeholders, particularly since a task force had only recently been established to come up with potential solutions to the problem.

CHARLESTON, W.Va. -- West Virginia subsidizes on average about 72 percent of costs for retired public employees' health insurance benefits, and a state finance board has had to rethink that coverage after having to report an existing unfunded liability for what that will cost down the road - now $7 billion and growing.
Cities, counties and the state are required by the national Governmental Accounting Standards Board to include non-pension retirement liabilities in financial statements. Those other post-employment benefits liabilities are referred to as OPEB and are a major concern for governmental entities.

While retiree rates and subsidies in West Virginia differ based on age, years of service and other factors, the average retiree pays about 28 percent of health care costs under the Public Employees Insurance Agency, PEIA Director Ted Cheatham said Tuesday. The rest is being subsidized for them.

"That's what we're talking about," Cheatham said. "That's what's generating the OPEB liability."

PEIA's finance board moved to act on that liability last week by voting to eliminate the retiree premium subsidy for new employees hired on or after January 1, 2010 - a decision met with immediate criticism and threats of legal action by unions for teachers and other public employees.

"At the same time the county boards of education are trying to sue us for making them report this unfunded liability," Cheatham said.

The vote has no effect on current retirees or current workers who will retire, Cheatham said.

Public employees hired in 2010 and beyond will have similar coverage to other active policyholders before retirement. But upon retirement the new hires will pay the full cost of their premiums, whereas current workers who retire still will have premium costs subsidized, he said. Rates for        deductibles and maximum out-of-pocket costs will be similar for new and current employees upon retirement.

"It does not affect current employees at all or current retirees," Cheatham said. "It doesn't mean that future retirees...cannot participate in the health insurance program with PEIA. They have to pay 100 percent of whatever the cost of that insurance is at (retirement)."

"The only thing that's going to be different is the premium level," Cheatham said.

Active employee contribution rates for new hires in 2010 also will be similar.

"Regardless of the hire rate, active employees of the state of West Virginia will have the same benefit structure and same contribution," Cheatham said.

PEIA was working to determine actual cost figures for employees hired after January 1, 2010. 

The subsidy is not a universal 72 percent subsidy on each tier of coverage, but rather it is over all tiers, based on the premium by tier and the number of policyholders covered in each tier, said Diane Holley, communications director for the state Department of Administration.

American Federation of Teachers-West Virginia President Judy Hale has expressed concerns that the change might make it more difficult to recruit and retain new teachers and that a decision on how to address the unfunded liability should have included more stakeholders, particularly since a task force had only recently been established to come up with potential solutions to the problem.

"We know that the state cannot continue to do what has been done, that this is an insurmountable liability," Hale said. "But we would like to have been given the chance to help create some options on how to deal with it."

Some states, for example, have allowed for health care savings accounts for active employees so they could put aside money for the individual once they retire in order to be able to buy health care, she said.

Hale also questioned the average retiree premium subsidy of about 28 percent, saying she had heard that retirees pay 30 percent to 40 percent.

Meanwhile, Cheatham said the PEIA board's decision may affect people's decisions to retire early, before they are 65 and Medicare-eligible.

"It is a concern for people," Cheatham said. "A decision they're going to have to make before they retire is how they're going to get that health insurance. And as the cost of that goes up to buy that insurance I think, indeed, people will have a hard time."

Options could include staying with PEIA and paying the full premium or switching to a private plan, Cheatham said.

Hale questioned if teachers still should be in the classrooms at 65 years of age.

"There are very few people at the age of 65 who still have the kind of energy that's needed to be in the classroom," Hale said. "We have a few. I don't think I could if I were 65."

PEIA board members eliminated the retiree subsidy for new hires after agreeing to take out about $28 million from the trust fund meant to cover OPEB costs. That was done in order to provide 35,000 current Medicare-eligible retirees the same benefit coverage after insurer Coventry Health Care of Maryland raised rates and announced it was pulling out of the market.

The trust fund currently has about $380 million, but PEIA would have to add another $790 million this year to address OPEB.

"That's the liability everybody's complaining about," Cheatham said. "The board in looking at this liability, every time that they take money out of this trust that increases this $7 billion dollar liability."

PEIA currently covers 37,000 retirees and 71,000 active policyholders, including from non-state agencies and the education sector. With spouses and children, that number climbs to about 214,000.

By eliminating new future retiree premium subsidies and assuming current trends and finances, PEIA's actuary estimates that the OPEB liability will peak about 2025 at $11 billion to $12 billion and then taper off and slowly decline until it runs out about 2070, Cheatham said.

PEIA had previously estimated that OPEB liability could grow to nearly $20 billion by 2017 if no changes were made.

Contact writer Michelle Saxton at michelle.saxton@dailymail.com or 304-348-4843.