Substituting the S&P 500's rate of growth for medical inflation could make retiree healthcare palatable to shareholders
By Staff Writer|September 01, 2006 at 08:00 PM
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Ever since the implementation in 1993 of FAS 106, corporations have been required to make actuarial projections of future health benefit liabilities using an assumed medical inflation rate and record the discounted value of the projected liabilities on the balance sheet. This change increased corporate awareness of the potential magnitude of the liability and made the income statement more sensitive to changes in medical inflation. Although the actuarial value of the liability may not be the true economic cost, the corporate response has been to limit materially retiree health benefits, guaranteeing a reduction in both the actuarial and the economic value of the program.
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