Do OPEB Costs Represent a Financial Tsunami?
It is no secret that healthcare premiums and expenses have experienced double-digit increases in recent years. Actuaries have estimated that healthcare costs represent approximately 20% of wages. OPEB has even been described as a “tsunami.” Historically, healthcare benefits were often given to public employees in union negotiations. Actuarial evaluations were not conducted; numbers were scribbled on the back of envelopes and deals were made. In this way, many public-safety employees receive 75% of their salaries as pensions, as well as 75% of their healthcare benefits upon retirement, with no minimum retirement age. Ten to 20 years ago, however, healthcare costs were lower and the workforce was younger. No one expected double-digit increases in the cost of healthcare. Exacerbating this situation are the changing demographics. People are living longer and often retiring earlier. The increase in OPEB liabilities is being driven by healthcare costs that are very difficult to predict and c
