Compliance May 16, 2014

GASB to Propose Improvements to OPEB Reporting

May 16, 2014 (PLANSPONSOR.com) – The Governmental Accounting Standards Board (GASB) is slated to issue two proposals about other post-employment benefits (OPEBs).
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According to a recent GASB announcement, the proposals to be issued in June will introduce improvements to accounting and financial reporting for non-pension benefits U.S. state and local governments provide to their retired employees. These OPEBs can involve retiree health care benefits, as well as life insurance, disability, legal and other services.

The proposals are aimed at improving the information reported about OPEBs for decisionmaking and accountability purposes, comparability across governments and transparency. They also are designed to equip all users of governmental financial reports and state and local government policymakers with information that would allow them to obtain a more comprehensive understanding of a government’s financial portrait.

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The scheduled GASB proposals include:

  • The first Exposure Draft, “Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans,” which will address financial reporting by plans that administer OPEBs on behalf of governments; and
  • The second Exposure Draft, “Accounting and Financial Reporting for Postemployment Benefits Other Than Pensions,” which will address accounting and financial reporting by government employers.

Like pension standards released in 2012, these new proposals would lead to changes in how OPEBs are accounted for and reported. GASB said the proposed OPEB changes would provide a more comprehensive picture of what state and local governments have promised and the actual costs associated with those promises.

Issues addressed by the Exposure Drafts include:

  • How the long-term obligation and the annual costs of OPEBs are measured;
  • Recognizing, on the face of the financial statements, a net OPEB liability—the difference between the total OPEB liability and the value of assets set aside in a qualifying trust to make OPEB payments; and
  • Presenting more extensive note disclosures and related schedules.

Some state and local governments have expressed concerns in the past regarding whether an OPEB is a liability, according to the GASB. For example, some argue they do not have an OPEB liability because they can choose to stop providing benefits whenever they wish. In some circumstances, OPEBs are not a legal or contractual obligation of that state or local government. So the benefits, or an employee’s eligibility to receive them, could potentially change in the future. However, if a promise to provide OPEBs was in place as of the date of the financial statements, the GASB believes that a state or local government has an obligation for OPEBs that constitutes a liability for financial reporting purposes.

By making the OPEB liability readily apparent, users of governmental financial statements would have access to information that provides a more comprehensive and easily understandable snapshot of a government’s financial health at a given moment in time, says the GASB. Without it, users are given an incomplete picture.

More information about the GASB’s Other Postemployment Benefits Project can be found here. Once released, the OPEB-related exposure drafts will be available at http://www.gasb.org.

Benefits May 15, 2014

Medical Cost Increases Predicted to Be Lower

May 15, 2014 (PLANSPONSOR.com) – Buck Consultants predicts cost increases for medical plans will be lower in 2014.
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The 28th National Health Care Trend Survey estimates cost increases for all types of medical plans will be down by between 0.1% and 0.5% this year, continuing a favorable trend of slow, steady declines generally experienced since 2010.

The survey finds medical plan costs are projected to increase at rates that are lower than prior surveys done in recent years. For example, with Preferred Provider Organization (PPO) plans, costs are only predicted to increase by 8.7% in 2014, compared with 9% and 9.2%, respectively, in the two previous surveys. For Point-of-Service (POS) plans, the predicted cost increase is 8.5%, compared with 8.8% and 9% in the last two surveys. For Health Maintenance Organization (HMO) plans, the predicted cost increase is 8.6%, compared with 8.7% and 8.8%. And with High Deductible Health Plans (HDHPs), the predicted increase is 8.6%, compared with 9.1% and 9.1%.

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“This may be a result of the economic slowdown and its impact on consumers’ willingness to seek medical treatment,” says Harvey Sobel, a Buck principal and consulting actuary who co-authored the survey, who is based in New York. “Even though the decline is good news, most plan sponsors still find 8% to 9% cost increases unsustainable.”

Survey results also show health insurers reported an average prescription drug trend of 9.2%, a decrease of 0.7% from the prior survey. On the other hand, pharmacy benefit managers, who generally do not take any underwriting risk, reported a weighted average trend factor of 4.1%—less than half of the factor reported by health insurers—but still up by 0.3% from the 3.8% reported in the prior survey.

In addition, for plans that supplement Medicare, health insurers reported a trend of 5.5% excluding prescription drug coverage, up from 4.1% in the prior survey. The survey report notes that Medicare Supplement plans generally have lower trends than other medical plans due to the impact of federal controls on Medicare fees and the smaller increases expected in Medicare deductibles and copays.

As for the impact of public and private health exchanges on medical plan costs, it’s too soon to tell, says Daniel Levin, a Buck principal and consulting actuary, who also co-authored the survey. “It may take another few years before we really know if, and by how much, the exchanges will bend the cost curve,” he says.

The national survey queried 126 insurers and administrators. Insurers and administrators providing medical trends for the survey cover a total of approximately 119 million people. A copy of the survey results is available to interested parties for $100 by visiting www.bucksurveys.com.

Buck Consultants is a provider of services in the areas of retirement benefits, health and welfare programs, talent and human resources solutions, compensation, and employee communication.

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