Public Agencies Consider Increasing Cost of Retiree Health Benefits

Public agencies statewide -- including cities, counties and school districts -- are not adequately prepared to pay retiree health benefit costs, which could exceed some agencies' annual operating budgets in some cases, the Los Angeles Times reports.

For people who retire before age 65, the health benefits cover most physician and hospital bills until the retiree becomes eligible for Medicare at 65. For those already eligible for Medicare, some benefit plans provide coverage for some services Medicare does not cover.

When health care costs were lower, many government agencies in contracts agreed to offer unionized workers "generous" health benefits packages, sometimes instead of pay increases, according to the Times. Some agencies managed the costs of such programs annually without calculating the long-term costs, but new nationwide accounting rules, which take effect in 2007, will require the agencies to determine the overall liability.

Elizabeth Hill, the state legislative analyst, earlier this year said that some school districts face bills that might become "so large they potentially threaten the district's ability to operate in the future."

Some local governments, such as the city of Los Angeles, have begun reserving money to pay for future health care costs. Los Angeles' prepayments cover about 60% of the projected cost of retiree health benefits for most city workers.

However, several government agencies, including the Los Angeles Unified School District, have only recently begun to examine the long-term costs. Spending on health coverage for current and retired LAUSD teachers, administrators and staff members in the district has increased from $319 million in 1997-1998 to a projected $749 million in the current budget.

Any changes in health care coverage would require approval from a health benefits committee controlled by union representatives.

In addition, the cost of state retiree health benefits increased from $457.5 million in 2001-2002 to $895.2 million in fiscal year 2005 (Rabin, Los Angeles Times, 8/5).