Financing Retiree Health Strategies in the Public Sector
Retiree healthcare costs continue rising, but public employers have powerful strategies available to manage these obligations while maintaining competitive benefits.
This 2019 white paper explores practical approaches to prefunding retiree health coverage — helping you spread costs more evenly, reduce future liabilities, and potentially enhance your organization's financial ratings.
Understanding the Current Landscape
Retiree health coverage is valued by employees and retirees alike, yet rising costs and GASB reporting requirements have increased financial pressures on public employers. Baby boomers are retiring in record numbers, and the "implicit subsidy" from blended rating pools adds hidden costs many organizations overlook.
Prefunding Options That Work
From reallocating salary increases to re-engineering paid time off programs, this paper outlines realistic ways to fund retiree health benefits without breaking the budget and shows how other public employers are thinking strategically about total rewards packages.
The number of current and soon-to-be retirees covered under public sector programs is increasing. Adding in the effects of rising medical and pharmacy costs and increasing life expectancies, employer costs are expected to grow significantly. You’ll find an overview of the available tax-efficient vehicles for setting aside funds to meet future healthcare obligations:
- Voluntary Employee Beneficiary Associations (VEBAs)
- IRC Section 401(h) arrangements
- State grantor trusts
- Health Savings Accounts (HSAs)
Each option offers unique advantages depending on your organization's structure and goals.
Key Considerations for Your Organization
Every entity faces unique challenges. This guide helps you ask the right questions about legal constraints, collective bargaining dynamics, administrative requirements, and alignment with your overall human resource strategy.
Public employers are competing for talent in a tight labor market while managing escalating healthcare costs. Pre-funding strategies offer a path to maintain valued benefits, improve financial sustainability, and demonstrate fiscal responsibility—all while supporting recruitment and retention goals.
Whether you're exploring options for the first time or refining an existing approach, this comprehensive resource provides the framework you need.