The implicit rate is an inherent subsidy of retiree healthcare costs by active employee healthcare costs when healthcare premiums paid by retirees and actives are the same.

The true healthcare costs for retirees are, on average, greater than active employees’ healthcare costs. Thus, if both subgroups pay the same per-capita premium for their benefits, retirees are paying less than they would if their premiums were calculated solely based on retiree-only expected healthcare costs. With an implicit rate subsidy, the active employee premiums are subsidizing the retiree premiums, and that subsidization creates a liability that needs to be recognized.

Some employers may think that they do not have an OPEB liability because, although they offer post-employment benefits, the retirees pay the full cost of those benefits. If a retiree pays the full cost of benefits (100% of the premium), it might seem at first glance that there is no liability for the employer; but there may still be a liability because of an implicit rate subsidy.