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Funding Local Government Health Care is Getting Tougher

(September 28, 2011) National Study Tracks Ongoing Efforts to Trim Employee and Retirees Costs

About 42 percent of the nations' cities, counties and townships expect their revenue to fall again in 2012, according to a national study of over 1,690 local governments across the country. Local leaders are confronting employee health costs to help balance budgets.

"When asked to rate the effectiveness of their efforts so far on a scale of 1-10, the average response was a 5."

According to the Health and OPEB Funding Strategies: 2011 National Survey of Local Governments, the number of local governments setting aside dollars to pay the long-term costs of retiree health care has fallen from 30 percent in 2010 to 19 percent in 2011. In addition, local leaders are using strategies ranging from wellness programs to higher out-of-pocket costs to bring costs under control.

"In a very real way, local governments must choose if they will pay for police, potholes, or pills," said William SaintAmour, executive director of Cobalt Community Research. Cobalt is the nonprofit research coalition that coordinated the national study.

"It's very, very tough to address immediate needs and long-term benefit costs. This report explores how local leaders are striving to do it."

Now in its fourth year, the study report summarizes the ways more than 1,690 city, county, township and special district governments across the country are addressing health expenses as the economy continues to erode revenue levels.

The report finds that:
  • About 6 percent of local governments plan to eliminate health coverage. More than 25 percent plan to increase premium costs, increase deductibles and copays, implement wellness programs, expand the use of generic drugs or renegotiate with insurance carriers

  • 30 percent already have implemented some of these changes

  • 60 percent have not taken advantage of design changes that could both reduce costs and improve the overall health of their active and retired employees. Examples include disease management initiatives, wellness initiatives or educating employees and retirees about how to make better health care decisions

  • 72 percent of local governments do not provide retiree health care, but a third of those that do believe coverage is too generous

  • For those who are setting aside dollars to prefund health care, 54 percent are placing them in a more flexible general fund account that they can access for other purposes. Only 14 percent did so in 2010

  • Uncertainty on how to address future costs rose from 16 percent in 2010 to 28 percent in 2011

"There are many options local governments have not pursued because of labor contract constraints, lack of staff time and uncertainty the effort will pay off," said SaintAmour. "When asked to rate the effectiveness of their efforts so far on a scale of 1-10, the average response was a 5."

The report takes a detailed, scientific snapshot of benefit strategies at all levels of local governments - from large counties to small townships. The study was coordinated by Cobalt Community Research, a leading nonprofit research coalition based in Lansing, Michigan.

The study was made possible through the support of the following organizations: Gabriel Roeder Smith & Company, Aetna, the Employee Benefit Research Institute, Gallagher Public Entity & Scholastic Group, GE Asset Management, the Government Finance Officers Association, Ice Miller, the International Foundation of Employee Benefit Plans, Milliman, Munder Capital Management, the Municipal Employees' Retirement System of Michigan and the National Conference on Public Employee Retirement Systems.

The report is available at no cost at

About Cobalt Community Research
Cobalt Community Research is a 501c3 nonprofit coalition with a mission to provide research and educational tools that help schools, local governments and other nonprofit member organizations thrive as changes emerge in the economic, demographic and social landscape. Cobalt provides citizen surveys, school surveys and other specialized research for governmental and membership organizations.

Additional information on health funding, GASB 45 and local government response is available through the following organizations:

Gabriel Roeder Smith & Company 800.521.0498
Aetna 860.273.0999
Employee Benefit Research Institute 202.659.0670
Gallagher Public Entity & Scholastic Group 630.285.4009
GE Asset Management 888.757.9666
Government Finance Officers Association 312.977.9700
Ice Miller 317.236.2489
International Foundation of Employee Benefit Plans 888.334.3327
Milliman 888.686.3371
Munder Capital Management 888.686.3371
Municipal Employees' Retirement System of Michigan 800.767.6377
National Conference on Public Employee Retirement Systems 877.202.5706 website: 877.202.5706

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