Author Archives: afscme

Cities make slow progress in addressing retiree healthcare liabilities

Source: Sunny Zhu, Thomas Aaron, Eric Hoffmann, Leonard Jones, Moody’s, Sector In-Depth, Local government – California, March 18, 2019
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Similar to pensions, other post-employment benefits (OPEB) — principally retiree healthcare — are liabilities that pose credit risks for some local governments. With rising healthcare costs, longer life spans and aging workforces, OPEB costs are escalating rapidly in some casesand unfunded liabilities are becoming a material source of balance sheet leverage. Positively,numerous California (Aa3 positive) cities, including San Jose (Aa1 stable), San Francisco (Aaa stable) and San Diego (Aa2 stable), have taken proactive steps to curb OPEB costs. Few cities have meaningfully reduced these liabilities to date because most cost-containment strategies will take years to provide substantial savings. If unaddressed, rising OPEB expenses threaten to curtail other local government spending priorities.

Reliance on top earners exposes states and downstream entities to revenue volatility

Source: Matthew Butler, Emily Raimes, Nicholas Samuels, Timothy Blake, Moody’s, Sector In Depth, State and local government – US, March 20, 2019
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The high-income states of California (Aa3 positive), Connecticut (A1 stable), New Jersey(A3 stable) and New York (Aa1 stable) rely heavily on tax revenue from their biggest earners to fund services. Such earners make up between 1% and 3% of these states’ taxpayers but account for more than 40% of personal income taxes. This dependence exposes the states to the volatility in high earners’ income, particularly as tax increases enacted since the 2007-09 recession have fallen predominantly on the top earners.

Automation and a Changing Economy

Source: Conor McKay, Ethan Pollack & Alastair Fitzpayne, Aspen Institute, Future of Work Initiative, April 2019

Automation is an important ingredient driving economic growth and progress. Automation has enabled us to feed a growing population while allowing workers to transition from subsistence farming to new forms of work. Automation helped moved us from a craft system to mass production, from blue-collar to white-collar to “new collar” work—with better work, higher wages, more jobs, and better living standards.

But without adequate policies and institutions, automation can also have negative effects on individuals and communities. Emerging technologies—including artificial intelligence, machine learning, and advanced robotics—have the potential to automate many tasks currently performed by workers, leading to renewed questions over what the future holds for the American workforce. We must ensure the proper support structures are in place to promote opportunity and prosperity for all.
Automation and a Changing Economy is divided into two sections.

Part I, Automation and a Changing Economy: The Case for Action, explores how automation impacts the economic security and opportunity of the American worker…..

Part II of this report, Automation and a Changing Economy: Policies for Shared Prosperity, outlines a program to address automation’s challenges and opportunities……

Related:
Executive Summary

Do prices vary with purchase volumes in healthcare contracts?

Source: Robert B Handfield, Jaikishen Venkitaraman, Shweta Murthy, Journal of Strategic Contracting and Negotiation, OnlineFirst, April 4, 2019
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From the abstract:
Hospitals are facing severe increases in the cost of clinical supplies, and a common strategy is to drive economies of scale achieved by hospital consolidation. The supply strategy of “volume leveraging” involves sourcing through contracts with Group Purchasing Organizations (GPOs) for commercial distributors and manufacturers of medical products. This study seeks to document the empirical benefits associated with volume leveraging, through analysis of purchasing data from three large hospitals. The dependent variables include a number of factors that are used to justify volume leveraging approaches, yet the study finds no significant explanatory factors that determine price variation related to the volume purchased. Interviews with physicians and clinicians suggest that poor data quality leads to lack of transparency, and an inability to aggregate volumes across inventory SKUs may be preventing volume-based cost savings from materializing. The results also suggest that lack of transparency results in low levels of utilization, which increases costs.

Medicaid spending set to consume a greater share of the US economy, despite flat enrollment

Source: Genevieve Nolan, Nicholas Samuels, Emily Raimes, Timothy Blake, Moody’s, Sector Comment, April 3, 2019
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Over the coming decade, demographic trends will play a role in driving up Medicaid costs as the US population both ages and lives longer, while growing healthcare costs and changing state policies will also contribute to rising expenditures.

Opioid settlement to benefit Oklahoma State University, local governments

Source: Adebola Kushimo, Susan I Fitzgerald, Leonard Jones, Moody’s, Sector Comment, April 5, 2019
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The agreement will bolster research funding in a growing area and position the university to enhance its brand and boost philanthropic support. In addition, it will benefit Oklahoma cities and counties, which will split $12.5 million as they grapple with a growing social risk.

Lump-sum Pension Payments: Who Are the Winners and Losers?

Source: Olivia S. Mitchell and Elizabeth Kennedy, Knowledge@Wharton, April 2, 2019

The U.S. Treasury department’s move last month to allow private companies to pay lump-sum pension payments to retirees and beneficiaries, instead of monthly payments, is good news for companies that do not want to be saddled with long-term pension obligations – particularly for private sector employers who have underfunded pension plans.

However, lump-sum pension payments may not work out well for retirees who opt for them. While a debate has ensued on the merits and risks of lump-sum pension payments for employees, there are also wider concerns about the long-term impacts on the entire economy when retirees do not have sufficient financial resources to support themselves. Those concerns are assuming a new importance because of the rapid growth of the so-called gig economy with temporary workers and freelancers who don’t enjoy employer-sponsored retirement benefits.

The Treasury department’s latest move reverses an Obama-era pledge to bar employers from offering lump-sum payments. The fear was that those receiving a lump-sum payment might be shortchanged and also might be tempted to spend the money sooner. Around 26.2 million Americans receive pensions right now, though that number has been declining as businesses favor 401(k) plans instead…..