A key challenge for public U.S. employers is how to fund health care benefits for their retiree workforce. The Government Accounting Standards Board 45, an accounting rule that went into effect in 2007, states that public employers can no longer report postretirement health benefits on a pay-as-you-go basis, but rather must account for and report the annual cost of other postretirement benefits for retirees.
As a result, billions of dollars in unfunded OPEB liabilities have been uncovered nationwide, causing local city and state government and union employers to scale-back significantly on health care benefits for early retirees or reduce other benefits or expenses. Therefore, for millions of early retirees ages 55-64 within the public sector, the implications of GASB 45 pose the threat of them being left without medical coverage until they qualify for Medicare benefits.
Medical tourism as an alternative
A September 2008 issue brief by the Center for State & Local Government Excellence, "After GASB 45: Solving the Unfunded Liability Problem in Retiree Health Care," reveals that many state and local governments are responding to the challenges of GASB 45 by exploring alternative benefit strategies that employ cost-containment, efficiency improvements and prefunding mechanisms.
One cost-containment strategy, medical travel, offers a promising solution to providing cost-effective health benefits to early retirees in the public sector. According to a 2009 Deloitte Center for Health Solutions study on medical tourism, outbound medical tourism is projected to reach an upwards of 1.6 million patients by 2012, with sustainable annual growth of 35%. The concept of medical travel or global health care in the third-party-payer market is that individuals receive a medical benefit offered through their employer, which gives them the option of traveling to international hospitals for major surgical procedures.
Medical travel programs typically deliver 40% to 80% savings on common, high-cost surgical procedures such as hip and knee replacements. That savings is generated even after factoring in all travel and hotel accommodations for the patient and a travel companion.
Employers who incorporate a medical travel program typically allow individuals to waive their copays, deductibles and coinsurances. Employees who receive medical care internationally are then able to retain dollars they would have otherwise spent if they had chosen to have their procedure done domestically.
Global health care programs specifically address the health care affordability challenges posed by GASB 45, as:
* The cost-savings associated with receiving medical care outside the United States are so significant that public-sector employers can reduce retiree health costs. At the same time, such programs augment existing benefit programs and can be implemented at little to no cost to the employer.
* Some employers are taking medical travel one step further by sharing a portion of the savings generated by global health care with their employees through health reimbursement accounts.
Here's how it works: An employee utilizes her medical travel option to undergo surgery in Thailand. All out-of-pocket costs are waived, and the employer deposits a fixed dollar amount into the employee's HRA that represents the employee's share of the savings. The funds deposited are tax-deductible to the employer and tax-free to the employee, and can then be used by the employee to pay for future medical expenses.
While there are no easy solutions to overcoming the financial challenges GASB 45 poses to the public sector, global health care benefit programs for early retirees may be a concept more local and state government entities will be embracing in the years to come. -E.B.N.
Steven Lash is the president & CEO of Satori World Medical, a global health care network. Lash has more than 25 years of health care experience.For more information, visit www.satoriworldmedical.com.
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