Off the Kuff Rotating Header Image

Houston’s health care costs

Because dealing with pensions wasn’t enough.

Taxpayers also face a $2.1 billion liability for retiree health care costs in the coming decades, and Houston – like many state and local governments – has not set aside a penny to pay for those promises.

This burden is the city’s “next major long-term fiscal challenge,” according to PFM, a financial analysis firm Houston has hired to recommend ways to shore up its long-shaky books.

Turner said any financial hurdle concerns him, but the far-larger pension problem took precedence, as the city’s recovery from Hurricane Harvey will do now.

“That’s one of many issues that we have to address, but I am very much aware of it,” Turner said. “Let’s just say we tackled the biggest item and then we’ll tackle the other ones as we go. One step at a time.”

These costs for what are known as “Other Post-Employment Benefits” – OPEB for short – have become a growing issue for local governments, thanks to rising health care expenses and an aging population and public workforce. In Houston, retirees comprised a third of all the city’s health care beneficiaries in 2012, up from 18 percent in 1994.

A shift in accounting rules also has played a key role. In 2008, the Governmental Accounting Standards Board began requiring governments to report their retiree health care costs, not as an annual operating expense, but in the same manner as pensions: Trust funds fed by payments from the city and workers on which investment earnings accumulate to pay for benefits over the next few decades.

Houston and many of its peers have never stopped treating the expense as simply an annual bill to be paid, however.

I know nothing about accounting, so I don’t understand the reasoning behind that 2008 change in standards. Be that as it may, the city has a lot more flexibility here in that the Mayor can order changes in the health insurance system. Mayor Parker did exactly that a few years ago, raising premiums and ordering retired employees to enroll in Medicare at age 65. That cut costs by quite a bit at the time, but they have since climbed back up, as health care costs are wont to do. Ultimately, of course, this is a problem that is too big for Houston to solve. Any solution to control health care costs necessarily involves controlling how much doctors and hospitals get paid. In the meantime, entities like Houston will do what they can to manage their own costs, but they’re going to need help in the long run.

Related Posts:

12 Comments

  1. Maybe if houston city council and county court was smarter they would add medicaid expansion to their websites/platforms.

  2. Bill says:

    We specifically included expanded healthcare access in our expanded Legislative Principles for 2017.

    http://www.houstontx.gov/govtrelations/85th_Legislative_Principles.pdf

  3. There are 16 other people.

    That’s 4 pages of fluff

  4. Bill says:

    No, that’s a Council approved legislative set of principles for the operation of my department. It passed unanimously with discussion. So, for those keeping score at home, that’s 17-0.

  5. Steve Houston says:

    The accounting rules have changed because so many cities were hiding vast liabilities that made properly evaluating their bonds almost impossible, Houston only one of many doing this. In most states, cities are not allowed to drastically cut such benefits except under doomsday scenarios but like pension reform, Houston was an early adopter of cuts to the point where a growing number of retired municipal employees have to devout their entire retirement check to paying for their health care costs. Unlike Joe’s fantasy world where listing a goal or priority on a website magically translates into the state and federal government complying with it, the reality is that few in power that can expand medicaid have any desire to do so.

    Going a little deeper than Bill’s link on the city website, the city claims to have made great savings over the years in healthcare costs in ways other than screwing the employees as former Mayor Parker did. By going to yearly checkups, getting preventative care, and doing certain things, employees have saved the city and themselves hundreds of dollars each, a “win/win” situation that sounds like it could be expanded to the retirees. Maybe requiring generic drugs or trying cheaper versions of drugs, and cutting out frills like boner pills or charging more for spouses and/or additional family coverage could spread the costs more evenly. Putting more retirees in HMO programs would save a ton of money too according to the charts posted on the city website.

  6. 16, 17. It doesn’t matter.

    None of them have healthcare solutions.

  7. Ross says:

    Once again, Joe forgets that the City has to operate in the currently available framework. Spouting crap like “add medicaid expansion” shows an utter lack of understanding reality.

    Non-governmental entities dealt with this accounting issue in the early 90’s when FAS 106 was issued. For General Motors, it wiped out $22 billion of equity overnight. The accounting term is OPEB, Other Post Employment Benefits. Personally, I think the Financial Accounting Standards Board has run out of things to do and is finding ways to screw any entity that has to present financial statements. GASB, the Government accounting equivalent then follows along some time later. I can hardly wait for GASB to require implementation of the Lease Accounting pronouncement by governments.

  8. C.L. says:

    Pretty soon, City pensions will be a thing of the past. Employees will be paid a decent salary while working, and how the employee chooses to invest any salary ‘overage’, to help support themselves in the future, will be entirely on them. CoH needs to get out of the business of acting as a person’s Charles Schwab or T Rowe Price if it’s going to survive – the downside/upside is that it’s going to force folks to be personally accountable for their personal welfare or financial well being.

  9. Actually, there are more ideas than expanding medicaid.

    Republican presidential candidates have supported non public enployees buying inti pensions and healthcare plans.

    I guess Amanda Edwards was asleep at harvard law

  10. Steve Houston says:

    CL, that ship has sailed unless you change federal law because Houston opted out of Social Security for many employees. As such, the city doesn’t have the legal right to throw a few extra dollars at employees and take their word for it that the money will be invested, any more than the feds allow private sector employers to do it. What could happen is that employees starting on some specific date will be placed on a defined contribution plan, the city doesn’t have to administer the program. But as of now, the city doesn’t act anything like a private investment adviser, the employees rely on their own pension systems for that (none of which are controlled or owned by the city. I’m sure the employees appreciate your sentiment that they will someday be “paid a decent salary” though, several that have come on here have routinely pointed out it is not the case currently.

  11. Bill Daniels says:

    Steve,

    Why can’t the city just start new hires paying into Social Security? In other words, wind down the current pension plan over the long term.

  12. Ross says:

    @Bill, I think the City does ahve municipal employees covered by SS. Police and fire are a different story, and it’s complicated. More details here https://www.ssa.gov/slge/pol_fire.htm

Bookmark and Share