One of the highest impact assumptions in OPEB actuarial valuations is the participation rate. This rate represents the percent of future retirees assumed to participate in the employer’s health plan during retirement.
The participation assumption has a direct and leveraged effect on OPEB liabilities. For example, if the assumption is that 60% of employees are assumed to elect coverage at retirement, but the actual “crystal ball” rate is 40%, then the plan’s liability is 1½ times what it should be. As a result of healthcare reform, similar examples may become a reality that employers and actuaries should address proactively.
How will healthcare reform affect participation rates? That’s kind of a grey area. How grey? “Charcoal” as Fletch would say.
Participation rates will be different in the future due to anticipated cost-saving changes to retiree plans by employers. Recently, 61% of the companies included in an Aon Hewitt survey were either already evaluating or expected to evaluate their long-term retiree medical strategy by the end of 2011.
Another factor affecting participation rates is that retirees will be able to comparatively shop the benefits, features and costs of their employer’s plan with private and state-run exchange plans. It is inevitable that some retirees will find a plan, and not their employer’s plan, that provides a better value and/or fit of benefits.
What’s the next step? Be proactive and determine your organization’s long-term goals for retiree healthcare. This involves learning what options are or will be available to retirees, strategizing as to which options best meet your goals and consulting with your actuary to determine the impact that changes will have on your OPEB costs.