Retiree Health-Care Funding Continues to Decline
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What is the main topic discussed in this episode?
Here's your money briefing for Monday, November 9th. I'm J.R. Whelan for The Wall Street Journal.
How did the 2008 recession and COVID-19 trigger declines in city and state revenue?
Cities and states' ability to fund health care benefits for retirees took a major hit during the 2008 recession. And just as they were getting back on their feet, the pandemic came along with a one-two punch. As the cost of insurance soars, that's forcing further cutbacks to health care plans that municipalities promised to retirees.
What we've seen with COVID is a lot of states not having any sort of revenue coming in from taxes and tourism, which has made things really hard.
That's The Wall Street Journal's Logan Moore. Coming up, she'll explain what states are doing to replace health benefits and what it means for retirees. That's after the break.
Steep revenue declines are forcing municipalities to make tough financial decisions. That includes the question of paying into funds for health care that's been promised to retirees. To explain what's going on, I'm joined by The Wall Street Journal's Logan Moore. Logan, thanks for being here.
Yeah, thanks for having me.
So how bad has it gotten for states that have to pay into coffers that essentially fund retiree health benefits?
It's gotten really hard. Recently, we've seen record revenue declines that are pressuring cities and states to reduce health care benefits for retirees. And it varies from state to state, but some of them have eliminated these benefits entirely or have offered some sort of stipend instead.
And a lot of states have barely gotten back on their feet following the last recession.
Yeah, that's right. And now what we've seen with COVID is a lot of states not having any sort of revenue coming in from taxes and tourism, which has made things really hard. So there were 17 states as of December 2019 that haven't accumulated any assets to pre-fund additional benefits like healthcare. And only three states have funded ratios for these types of health care benefits that are above 75%.
Which states entered the pandemic without prefunding retiree health benefits?
That is the amount of money that a fund has that is available for people to receive these benefits. So a funded ratio above 75% is typically considered pretty good. That means that there is a 75% chance that that state will be able to pay its retirees the benefits that it has promised them.
So how would that affect the health care coverage that retirees get?
A lot of things that I've seen in my reporting have been related to people who actually find their own insurance on the marketplace because they aren't really satisfied with the benefits being offered as they've been adjusted over time or the stipend just isn't enough for them to, you know, take care of themselves or the rest of their families.
Now, a little earlier, you mentioned health stipends as sort of a replacement for benefits that states are putting into place. Can you tell me more about what that is?
If we use the Ohio Police and Fire Pension Fund as an example, they used to offer what we would call a group health care plan in which they sort of negotiated with the broker to set plans in place about what sort of benefits would be offered and where retirees could go to get medical care. And so instead, they have eliminated that and instead put in place a stipend in which retirees receive a check. monthly so that they have the opportunity to go out and purchase these plans themselves on the open marketplace rather than have it planned out by the fund.
How do funded ratios work and which states have solid prefunding for retiree health care?
How have all these changes forced workers to kind of modify their plan for retirement?
Yeah, it's been really challenging for some people. I actually spoke to a retired firefighter in Canton, Ohio, who had said that, you know, if he wasn't qualifying for Medicare next year, he would have had to work a lot longer. He retired back in 2013. I also spoke with a teacher in Ohio who is part of the state retirement teachers fund. And he had also said that if his fund hadn't still been providing these benefits, he'd he would have had to be a teacher until he was at least 65 and he qualified for Medicare, which is a pretty old age to be a teacher.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:05–0:10
2
How did the 2008 recession and COVID-19 trigger declines in city and state revenue?
0:10–2:01
3
Which states entered the pandemic without prefunding retiree health benefits?
2:01–3:23
4
How do funded ratios work and which states have solid prefunding for retiree health care?
3:23–4:16
5
What alternatives are states using instead of group retiree health plans (like stipends)?
4:16–5:08
6
How are retirees adjusting when employer or municipal health plans are reduced or eliminated?
5:08–5:38
7
Why do pensions often get priority over retiree health care funding and how does that vary by state?
5:38–5:46
Speakers
2 identifiedMore from WSJ Your Money Briefing
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