State and Local Governments Plan Alternatives for Retiree Medical Benefits Funding

Most government employers offer retiree medical coverage, but there are several factors converging to force government employers to review their current retiree medical programs. Whatever funding mechanism is chosen—medical savings accounts, defined contribution plans, government “pick-ups” or a variety of other options— the goals must remain to maintain effective benefits for current and future retirees, treat all parties fairly, keep retiree medical benefits affordable, adopt legally permissible funding methods and develop an approach with reasonable administrative external and internal costs. This article looks at the current funding mechanisms being used as well as the pros and cons of available alternatives. In the end, the ultimate challenges will be not only structuring the funding to be as tax efficient as possible but also designing plans to manage the erratic, but ever increasing, cost of health care in general.