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How do you blend the rates in 2 separate plans?

The OP stated that a "retiree" plan was going to be added as a new benefit. I read that to be a new separate plan for these "retirees".

Even if there was 1 single plan, Would blending be allowed? Is there legal standing to charge 2 similarly situated participants different rates? For example 2 single females both age 45 residing in the same zip code, with the only difference being that 1 is a "retiree" and the other still an active employee. Or better yet, the same 2 single females, but the active employee is curently being treated for terminal cancer. Are you saying that there is legal support that allows the active to be charged more than the "real" rate and the "retiree" to be charged less or vice versa, solely because of job status?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns:

An employer can contribute differing amounts for employees in different classes of employment.

The employer can pay 100% of all the active employees' costs and a differing percentage of the retired employees' costs.

If, by the "real rate" you mean the actual cost of the benefit plan for an individual, then , yes, an employer group plan can charge an individual more than the actual costs of the benefits attributable to that individual (or class).

For example, many plans charge employees 50% of the average premium for the group. Ifthe group's demographics include a fair number of older employees, then the younger employees' cost of 50% of the average premium could well be more than the benefit cost (plus administration) for the younger employees.

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This is worse than comparing apples and oranges.

Larry M

The employer is paying nothing. It is entirely employee paid. This was stated in the OP. There is no employer contribution, So the employer has no ability to pay a varying contribution by class or otherwise.

If there are 2 separate plans, as was proposed in the OP, there would be only 1 "class", the retirees.

jsb

I did as you suggested. I did a Google search on "implicit rate subsidy". I do not see where this is applicable or even valid. I took note of many comments such as this which was excerpted from:

http://www.nacubo.org/x3844.xml

" Especially compelling to us is the notion spelled out in paragraph 197,if the ED is adopted as is, “the financial statements will . . . reflect what the impact would be if health insurance companies charged a different premium for retirees than for active employees . . . this information is neither relevant nor valid because financial statements should not reflect ‘what-if’ situations.” A question we might ask – akin to what we ask when calculating and recording contingent liabilities – is, “is the event probable and measurable?” It is our view that an OPEB implicit rate subsidy – while it may be measurable - will likely never be a probable obligation of the institution. The level of precision demanded by the ED in calculating the benefit expense and related liability causes us to wonder why estimates remain acceptable in other financial statement categories, for example, depreciation." (emphasis mine).

There were many other articles all following the same thought and showing that it is not applicable to this case.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns,

The original question discussed a new benefit package to be added to a current plan. As I read the question, the following referred to the new package of benefits for the retirees:

"Must have worked here 20 years

Employee pays premiums (although the idea of employer paid is still being tossed about)

Benefit never ends until employee does (no stopping or COBRA eligibility upon Medicare eligibility)"

I did not read the question to state the actives also had to have worked there for 20 years, or paid all the premium.

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I have said nothing about the "active" either being there 20 years or paying premium. All I addressed was the "retirees".

The OP said "ADD them to our benefits menu". It did not say add them to our existing health plan. To me that means a new plan for the "retirees". You expand eligiblity or coverage in an existing plan, but to "ADD" to a benefits menu means a new item.

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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GBurns - I'm afraid we're just going to have to disagree on this. I'm not sure I would rely so heavily on someone's 2 year-old comments to an initial exposure draft for formulating my position on this issue. As have you, I too have seen, and heard, many similar opinions expressed over the past couple of years. But that's not where credible sources are hanging their hats these days. The seminars, consultant newsletters, and other recent meetings we've attended all recognize the implicit rate subsidy as a real issue, at least in relation to GASB and governmental reporting of OPEB liability. But, it still waits to be seen how the auditing firms will actually treat this component of OPEB when their first opinions come due in a couple of years. If an entity with blended rates reports no funding or liability, and the audit firm issues an unqualified audit, then I'll cross over to your side. However, I suspect we'll be seeing liability reported or appropriate notes written by auditors.

That said, recognition of OPEB in the private sector may be different. I took a quick look at FAS 106 and couldn't really find mention of the implicit rate subsidy or anything like it, so maybe it doesn't exist in that world. In such case, you're right, it's not an issue.

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