New Report: OPEB Reform

How and why to reform OPEB, the trillion-dollar retiree health care bill

NEW YORK, NY — States and cities across the country find themselves under growing fiscal strain as retirement costs continue to mount. But contrary to public perception, the problem is not limited to pensions. The cost of long-term public retiree health care benefits, increasingly rare in the private sector, now stands at over one trillion dollars. Two new Manhattan Institute reports, released today, tackle these “other post-employment benefits” (OPEB). The first, “The OPEB Off-Ramp: How to Phase Out State and Local Governments’ Retiree Health Care Costs,” explains the problem and offers a substantive, yet practical proposal for reform. The second, “Inviolable—or Not: The Legal Status of Retiree Medical Benefits for State and Local Employees,” examines potential legal barriers to reform in 10 states across the country.

The first report, authored by Manhattan Institute senior fellows Daniel DiSalvo and Stephen D. Eide has three chief findings and six policy proposals.

Findings:

1. The persistence of retiree health care in state and local government is partly a consequence of the influence of government unions.
2. Union strength cannot, however, be blamed for the whole problem. OPEB has been mismanaged by states and localities because fiscal and worker-compensation policies are often mismanaged in the public sector.

Proposals:

1. Place as a high a priority on OPEB reform as pension reform.
2. Phase out OPEB entirely.
3. Frame the debate in ways that enhance reform’s prospects.
4. Prepare for the legal battles that are likely to ensue.
5. Do not establish trust funds to prefund OPEB.
6. Put the Affordable Care Act’s subsidized exchanges to use.

The second report, authored by Amy B. Monahan, one of the nation’s leading authorities on public pension law, surveys the legal landscape of OPEB reform. Monahan looks at 10 states, finding that the ability to modify OPEB—though generally weaker than for pensions—varies significantly by jurisdiction and circumstance. Though OPEB protections are often ambiguous, Monahan argues that it’s in the interest of both employers and employees to pursue more clarity regarding the benefit’s legal status.

Monahan’s analysis and findings will be of immediate interest to the many public officials concerned about escalating OPEB costs, but who remain unsure as to what they can do about it. Her paper provides a framework through which such officials may evaluate their legal options on OPEB reform.

Click here to read “The OPEB Off-Ramp.”

Click here to read “Inviolable—or Not.”