Public Safety Benefits Can Significantly Affect OPEB Liabilities

Federal, state and local regulations often include mandated health benefits for officers disabled in the line of duty. These benefits are a way to reward officers for protecting and serving the public at great risk of bodily harm. The value of these benefits must be accounted for under GASB accounting rules, and there are a few important considerations when doing so.

Important considerations for OPEB plans:

– Determining the implicit rate subsidy (health cost in excess of the average premium). This may include expected health care costs for disabled officers that are significantly higher than for non-disabled individuals.  Another factor to consider is whether or not disabled officers are Medicare-eligible. If so, how does that reduce the expected health care costs?

– Determining the direct subsidy (portion of the premium paid by the employer).  This is the premium cost not only for disabled officers, but also for dependents.

– Length of benefit coverage. Unlike regular retiree health care which can begin around age 50 to 55 for officers, disability health care begins much earlier.  Often officers disabled in the line of duty are in their 30’s and 40’s.

The earlier start creates significant additional costs.  For example, the direct subsidy for a disabled officer age 40 could exceed $150,000 ($6,000 in premium per year for 25 years) – and this does not include any costs for dependent coverage or the implicit subsidy.

– Participation assumptions. Most, if not all, officers elect the employer’s coverage upon disability due to the employer’s direct subsidy of the premium.  In contrast, many regular retirees will waive the employer’s coverage if they receive little or no direct subsidy.

– Accounting for reimbursements. A number of states reimburse the employer for the direct subsidy costs. We haven’t found any written guidance on proper accounting, so we checked with GASB.  They said they would probably view the reimbursement as a “voluntary nonexchange transaction” accounted for under GASB 33, which would not reduce an employer’s GASB 45 liability.   This would be similar to GASB’s view of the Federal Medicare Part D reimbursement known as the Retiree Drug Subsidy (RDS).

How to ensure that your plan is valued appropriately:

To determine if your OPEB liability appropriately addresses the impact of disabled officers, you should:

– Understand your state and local health care rules for officers disabled in the line of duty.

– Identify any disabled officers you have and the amount they contribute to continue coverage.

– Consult with your actuary to determine if the OPEB liability is your responsibility or if it is the responsibility of another higher level of government.