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GASB 43/45: In the Trenches
Session 50

Moderator: Steven D. Bryson, Lewis & Ellis Inc.
Presenters: Steven D. Bryson, Lewis & Ellis Inc.; Jill M. Urdahl, Hildi Inc.
Recorder: Mary P. Ratelle, Health Risk Strategies

Session attendees discussed several topics related to the GASB 43/45 valuations for public entities, including:

• Types of employers;
• When is a group community rated?;
• Implicit rate subsidy and relation to actuarial standards of practice;
• ARC adjustment;
• Medical and other trend rates; and
• Amortization periods.

There was significant discussion around whether a group is community rated. One participant stated that if experience on a particular employer is not available, there is no sharing of employer information, and the total pool exposure is unknown then the group can be considered community rated. Others stated that if the risk pool will not take only early retirees, then you cannot call the pool community rated. The consensus was that the community rating standard is impossible to apply in practice. Our reports should disclose if we’re assuming the group is community rated and therefore no implicit rate subsidy exists.

There was a comment that in November or December 2007, The American Academy of Actuaries will publish and distribute a practice note that discusses the implicit rate subsidy. This will identify several issues discussed at the workshop including whether there could be a negative implicit rate subsidy.

There was discussion on the funding methods and their impact on the ARC development. The assumptions are the key and the actuary should understand the impact of these on the development of the liabilities.

States are starting to address the ability of public entities to legally fund the GASB 43/45 liabilities. Virginia, Georgia and Tennessee have recently passed legislation allowing pre-funding.

Some discussion occurred as to whether the GASB 43/45 assumptions are the same as the pension assumptions for retirement rates, mortality table, turnover, etc.

What should the ultimate medical trend rate be? From the 2000 Medicare Report on the CMS website, 5% could be the ultimate rate 30 years from now. There will be a tool on the SOA website in November or December 2007 that will help consultants determine the ultimate trend rate.

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