Health Care Accounting - Financial analysis issues

Implications: 1.   Susan Mangiero is correct in highlighting the impact of increasing health care costs.

2.   Financial analysts need to be concerned about the impact of retiree health care costs on earnings and the balance sheet.

3.   FASB 158 changes the accounting for retiree health care costs.

Analysis: Financial analysts need to focus on several things regarding retiree health care.  Under FASB 158:

1.   The reported expense is still a net number, reflecting service cost, interest expense, expected return on assets, amortization of actuarial changes, etc.  The breakdown of these components can be found in the footnotes of financial statements.  Analysts must analyze these components, and underlying assumptions.

2.   Unlike previous FASB's, the liability for retiree health care will be recorded as a liability using similar methodology as pensions.  This will affect the reported level of debt and equity.

3.   Qualified defined benefit pension plans are regulated by the PBGC.  There is no similar governmental agency for health care plans.  Health care plans are often managed/funded on a "pay-as-you-go" basis.  Financial analysts must embrace this issue.