Wednesday, October 18, 2017
Chain Mail (on Retiree Health)
From letter to the chair of the University Committee on Faculty Welfare from the chairs of the Task Force on Investment and Retirement (TFIR) and the Health Care Task Force (HCTF), letter of Sept. 21, 2017:
...TFIR and HCTF reject the balance-sheet argument that begins with a large-scale retiree-health liability increase to argue that change is needed. The calculation produces an artificially high estimate of the liability, due to a low discount rate dictated by GASB and high rates of general health care cost inflation, to portray our retiree-health benefit as unsustainable. In the projections TFIR and HCTF have been shown, even while using unrealistically high projected health care cost inflation, and while still maintaining the 70% floor, UC’s total post-employment benefit costs (again, currently 18% of payroll) increase to a maximum peak of 19.7% in 2027 and soon decline to less than 18% in 2034. We believe that these numbers are close to a worst-case scenario, and we note that even small declines in the assumed rates of health care cost inflation and/or small increases in the bond index used for discounting lead to large declines in the GASB-reported liabilities. Costs approaching 20% of payroll are not trivial, but the projections bring important perspective: UC is managing these costs currently, and their projected increase is only a marginal adjustment. It is more productive to frame the retiree health discussion as a budget topic, concerning our annual pay-as-you-go approach to retiree health, instead of reacting to startling—but ultimately meaningless—liability calculations.
Furthermore, we recognize that all of these statements are based on projections—as is the claim that retiree health spending is unsustainable. TFIR and HCTF further note that the retiree health spending projections are much more uncertain than projected UCRP costs since no one can accurately predict the outcome of current political debates over the U.S. health system. Uncertain health care costs have a larger impact on current active employee health costs, and UC has successfully managed these costs by annually reviewing our active employee health benefits with consultation from the Academic Senate (especially the HCTF). This model is successful and should be replicated for retiree health benefits...
From the chair of the University Committee on Faculty Welfare to the chair of the Academic Council in letter of Sept. 25, 2017:
...In short, HCTF and TFIR assert, and UCFW agrees, that new federal accounting standards promulgated by GASB (Government Accounting Standards Board) that require UC to list its retiree health liability in the ledger do not represent a significant new cost to the University, and attempts to portray it as such are misdirected. UCOP overestimates the size of the liability due to faulty inflation assumptions, and even if the administration assumptions are accurate, the response – to lower University contributions and cap spending – is disproportionate and hasty. Instead, adequate consideration of alternate funding strategies must be given publicly, with the inclusion of impacted stakeholder groups...
From the letter to the UC prez from the chair of the Academic Council dated Oct. 5, 2017:
...(The main message from the projections (made by TFIR and HCTF is that) the pay-as-you-go cost (of retiree health care) is manageable as a budget category, and the benefit is sustainable going forward...
Full documentation at http://senate.universityofcalifornia.edu/_files/reports/SW-JN-Retiree-Health.pdf