Assembly Bill 188: Restore Retiree Health Benefits for State Employees

• AB 188 restores retiree health benefits for state employees hired after 2011 and for PEBP Medicare Exchange retirees.
• State employees hired after the Great Recession deserve the same benefits as those hired in better economic years.
• Robust retiree health benefits are needed to compete with other Nevada public employers, especially to retain  mid-career employees, who carefully consider health care and retirement benefits.

Problem: Cuts to retiree health benefits are unfair to newer state employees and hurt retention

• Retiree health benefits through the Public Employees Benefits Program (PEBP) were eliminated for employees hired after 2011. Because none of the employees have met the minimum of 15 years of service, none have retired with health benefits, this has resulted in no cost savings for the State.
• In 2011, retirees on Medicare were removed from PEBP coverage and required to buy supplemental coverage through a private exchange. Instead of secondary PEBP plan coverage, Medicare retirees only receive a subsidy in their Health Reimbursement Account (HRA). The subsidy was $10 per month per year of service up to 20 years, and is now only $13/month/YOS despite higher increases in Medicare B premiums and Medigap insurance.
• A retiree's abilityto drop PEBP coverage (e.g., due to coverage from other employment or through a spouse) and rejoin was reduced to once in a lifetime.
• Retiree HRA account balances are capped at $8,000, which means they have fewer funds for out-of-pocket costs or catastrophic health events.

Solution: AB 188 reverses cuts to retiree health benefits for state employees

• Restore retiree health benefits for employees hired after December 31, 2011. These employees would receive subsidies for PEBP health benefits upon retirement and after at least 15 years of service. [Sec. 3]
• Encourage the Governor and Legislature to provide equitable subsidies to PEBP Medicare Exchange retirees. Require PEBP to calculate and report the cost of supplemental insurance to provide benefits that are actuarially equivalent to those for pre-Medicare PEBP retirees [Sec. 1].
• Allow retirees to reinstate PEBP coverage aftermore than one gap [Sec. 4].
• Prohibit PEBP from capping HRA balances for Medicare Exchange retirees [Sec. 3(7)].

Cost analysis: Minimal impact on fringe rate for retiree health benefits

Retiree health benefits are paid by a fringe-rate assessment on all state salaries, which averaged 2.50% since FY2010. Because the number of retirees relative to the total salary base will not change, the fringe rate should remain about the same with AB 188.

January 1, 2027, is the earliest that post-2011 state hires could retire with the minimum 15 years of service to receive a subsidy under AB 188. PEBP estimates 73 such retirees in FY2027, compared with a total PEBP retiree population of 15,500. That would raise the fringe rate by only 0.01% (from 2.50% to 2.51%) for FY2027 (Fig. 1), which the Retired Employee Group Insurance Fund could absorb. PEBP predicts a total of about 1,000 additional retirees over 10–12 years, which could raise the fringe rate by 0.16%, but that may not consider the natural decrease of retirees hired before 2011. The cost of restoring retiree health benefits is very modest, and no general fund appropriation for 2025–2027 should be required. PEBP's fiscal note request for four new staff positions over its current 34 positions is not justified by a 0.2% projected increase in caseload in FY 2027 (out of 46000 covered employees and retirees) or up to a 2.2% increase after 10 years.

Removing the cap on HRA balances and allowing more than one reinstatement will have little fiscal impact.

AB 188 increases the Other Post-Employment Benefits (OPEB) accounting liability that must be reported (Fig. 2), but the Treasurer's Office has indicated that AB188 is unlikely to affect the state's credit ratings. PEBP has always been on a pay-as-you-go basis, and AB 188 will not change that. 

Fig. 1. Historical fringe rate assessments for state retiree health benefits, FY2010-2027. The retiree health fringe rate has varied from 2.13% to 3.18% since FY2010, and per GovRec it will be 2.59% in FY2026 and 2.50% in FY2027. The average is 2.50% of state salaries, paid by the employing agency funding source and deposited into the Retired Employees' Group Insurance (REGI fund 1368). Transfers from the REGI fund to PEBP pay for retiree benefits. The projected increase in the fringe rate due to AB 188 is  0.01% in FY2027 and 0.16% or less long term, smaller than the year-to-year fluctuation from other sources.

Fig. 2. Reported Other Post-Employment Benefits (OPEB) accounting liability for PEBP from FY2008 to 2024. The OPEB liability declined after the major cuts to retiree benefits in 2011, primarily moving Medicare retirees to the private insurance exchange. According to the fiscal note from PEPB, the partial restoration of retiree benefits in AB 188 would increase the OPEB future liability by $179 million, from $1.46 billion to $1.64 billion (upon enactment). The Office of the State Treasurer has indicated that the increase in the OPEB liability from AB 188 is unlikely to change the state's credit ratings. PEBP is on a pay-as-you-go-basis; no annual payments against the future liability are being made or contemplated.