OPEB Part Deux

On Friday, State Senator McCabe had a nicely written retort to my op-ed last week on OPEB . Senator McCabe is a friend and I value his opinion greatly and I think he takes a well reasoned and balanced approach. I just wish I was as optimistic as McCabe about addressing OPEB and our long-term investment needs. The only statement that misrepresents what I wrote is when McCabe suggests I want to reduce or eliminate the retiree health care subsidy for employees. I do not and would not suggest this, especially since they’ve already eliminated it for all new hires and you’d risk a major lawsuit if you reduced the benefit.

While I agree with many of his points, I think our central disagreement is that I think reining in health care costs is a completely different issue from trying to prefund health care trusts rather than investing in workforce development. McCabe’s argument hinges on the discount rate – will the state get a better return on investment handing the money to Wall Street or will WV get a better return by investing in the education of the workforce, which will lead to higher incomes and more taxes paid in the future. Personally, I think the latter is a better investment, but I do recognize that this is a very debatable point.

I also do not agree – and this was a major point of my op-ed – that the $650 million reflects reality. I think the accrual measure is fundamentally flawed  – and even if it turns out to be true in 15 years that health costs rise to this extent than the whole country will be having far more serious problems – and is based on a worse-case scenario. However, I do recognize that many believe we have to use the numbers the actuaries give us, even if they are faulty.

Regarding health care costs, I agree wholeheartedly that this is the number ONE issue affecting our state and federal government’s long-term fiscal health. And I agree that to address this will require mostly federal action, but there are many things we can do at the state level. Sen. Rockefeller introduced a bill last year to allow people below age 55 to buy into Medicare. This could have put a nice dent in the projected OPEB liability. We should be putting pressure on DC for this proposal. There have also been dozens of other proposals at the federal level to specifically lower Rx drug bills. (It’s also important to keep in mind that if we had the per-capita health care costs of Canada, we wouldn’t even be discussing OPEB or the US debt problem.) At the state level, there are dozens of policy ideas to reduce costs and very few have been implemented.

I think we should be very concerned about our public pension debt (And I commend the Governor and Legislature on addressing this issue), which is real and in comparatively poor shape, and not be so worried about OPEB. If PEIA retiree health care costs rise to $650 million in 15 years, essentially quadrupling in size,  none of us will have health care. I know I would not be able to provide it to our employees if this happens. This is a major crisis! (It’s important to keep in mind that 22 states have appropriated ZERO funds toward their respective OPEB liability.)

My gravest concern is the state will not have the will or ability to make the important investments we need in education and workforce development and put $600 million into the OPEB Trust Fund. This is because state fiscal policy decisions are a zero-sum game – we can’t borrow like the federal government and resources are scarce – based on priority or what’s highest on the agenda. It’s about choices and we can rarely do everything that’s needed. If OPEB is a bigger concern than having an underdeveloped workforce and low-incomes, than it will get the investment. Rarely will both receive equal investment. I hope I’m wrong and McCabe is right.

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