Rising health care cost inflation is a growing concern confronting state and local governments who provide health care benefits for their retirees and employees. Nearly all governments offer some type of health care coverage to their employees. Allowing public employees and retirees the flexibility and tools necessary to save for retirement and to pay for health care expenditures is essential.

GFOA Position

The GFOA supports the Government Accounting Standards Board’s decision to require that state and local governments recognize the cost of other post-employment benefits (OPEB) as those benefits are earned each year by employees, just as they do for pension benefits.

The GFOA supports expanding federal tax incentives to facilitate saving for health care costs prior to retirement and for expenditures that occur during retirement.

The GFOA opposes any efforts by the federal government to impose unfunded mandates such as new health care plan requirements that further escalate the cost of employer-provided health care insurance on state and governments.

The GFOA supports a variety of federal legislative actions that would improve health care and reduce costs, including:

• Allow retired public employees to take a distribution from their deferred compensation plans, such as a 401(a), 401(k), 403(b) or 457 plan, and use these pre-tax dollars to pay for health care costs without incurring a tax penalty.
• Allow for elective conversion of sick leave into a health care account on a pre-tax basis.
• Expand the employer pickup provision under Internal Revenue Code Section 414(h) for health care to allow use of these pre-tax funds for health care costs.
• Allow retirees to pay for health care benefits and long-term care from their pension checks without tax consequences.
• Allow long-term care coverage under a cafeteria plan.
• Close the loopholes in Hatch-Waxman Act of 1984 (Drug Price Competition and Patent Term Restoration Act of 1984) that allow drug manufacturers to extend drug patents beyond their legal time limit and implement federal regulatory policy that makes it easier to obtain and keep generic drugs on the market.

• Publication date: June 2004