Read More »"/> Read More »"/>
We mean that in a good way this time, because for once, that incompetence might work to the advantage and benefit of regular Americans!
Let’s start at the beginning. Earlier this week, we commented upon the sorry state of unfunded liabilities for the nation’s public sector employees. Even large tax hikes, we noted, weren’t going to be anywhere near enough to erase the fiscal deficits caused by the growing gap between what government employers have promised to pay for retiree pensions and medical benefits, and what they can actually afford to pay. Because of that difference, we can reasonably expect that their government employers will stop making those benefits so excessively generous.
Today, we know how, thanks to the unintended consequences of policies made by another government entity. The consequences may even by large enough to send the Affordable Care Act into its well-deserved death spiral far sooner than expected. Alison Schrager of Quartz describes the likely impact of a little-noticed accounting change approved by an influential private organization this past summer:
Earlier this summer the Governmental Accounting Standards Board (GASB) released new recommendations urging states and municipalities to include retiree health care when they calculate their liabilities. When private sector firms had to do the same thing in 1990, they ditched the health benefits for retired workers altogether. If state and local governments do the same, it could have serious consequences for Obamacare.
A key feature of the Affordable Care Act are the exchanges where people can buy health care directly from insurers and comparison shop. Insurance markets inherently face an adverse selection problem: The only people who want to buy lots of insurance are the ones most likely to need it. That’s why it was so important that the “young invincibles”—young, healthy people—buy insurance on the exchanges to balance out the high cost of older, sicker people. So far, the population appears sufficiently diverse. The government claims 11.7 million people enrolled through the exchanges and 4.1 million are under 35.
But the new accounting rules might change the group’s composition. Many state and municipal workers retire under the age of 65, when they qualify for Medicare. Since minimum retirement ages for these workers are below age 60, this can leave a significant coverage gap to fill. In addition, some pensions offer health care that subsidizes or supplements Medicare after retirees turn 65. All these benefits are extremely expensive—the total liabilities are estimated to total $1 trillion. State and local governments have almost no money put aside to pay for retiree health care. The average funding ratio—how much money is put aside relative to how much is owed—is only 6%. Compare that to state pensions, which are allegedly about 70% funded….
The creation of ACA health exchanges may be the final nail in the coffin for retiree health-care benefits. The exchanges make it easier for states to phase out health-care plans because pre-Medicare retirees now have other, affordable options. Paul Frostin of the Employee Research Benefits institute anticipates this will open the door to more plan terminations; he’s even found some evidence it’s already happening.
It’s not often we get to see how a single, uncoordinated action by an obscure organization can force hundreds of excessively generous and unaffordable public employee retirement benefit programs onto a sound financial footing while also destroying the single most controversial government welfare benefits program ever devised by U.S. politicians and bureaucrats, but we really have to tip our hats to the unelected and unknown members of the GASB.
Normally, when that sort of thing happens, it hurts regular Americans. But this time, thanks to the incompetence of thousands of policitians and bureaucrats at all levels of government, a blow for sanity might finally be struck.
Who ever said that all unintended consequences have to be bad?!