Public Agencies Face Rising Retiree Health Care Costs
Public agencies throughout California are struggling to comply with new federal accounting rules that require the disclosure of unfunded health care and pension liabilities for current and future retirees, the Los Angeles Times reports.
Most agencies, including the state, fund retiree benefit costs on a pay-as-you-go basis and do not consider future liabilities. California, for example, faces a $48 billion liability over two decades (Saillant/Halper, Los Angeles Times, 6/10).
The price to public agencies of continuing to provide retiree health benefits at the current level will increase by 15% annually over the next 15 years, according to the California HealthCare Foundation. The increase is linked to rising health care costs, along with an increase in retirees and longer life spans (Halper, Los Angeles Times, 6/10).
The new rules prompted Gov. Arnold Schwarzenegger (R) in December 2006 to sign an executive order to create the 12-member Public Employee Post-Employment Benefits Commission.
The commission by Jan. 1, 2008, will offer proposals to the governor and Legislature (California Healthline, 5/8).
Most analysts agree that addressing the cost of benefits will involve a combination of:
- Reducing benefits;
- Raising taxes;
- Cutting public services; and
- Creating a trust fund to pay for future liabilities.
Such efforts to rein in costs could be derailed in some cases because some agencies are prohibited by state law from cutting benefits, and retirees often seek to have their benefits guaranteed in contracts.
Californians for Health Care & Retirement Security, a coalition of public employee unions, proposes setting money aside now to create a fund to pay for future retiree health costs.
However, even if agencies had enough funds to invest, health care costs will continue to rise faster than investment earnings, according to CHCF (Los Angeles Times, 6/10).
The California HealthCare Foundation is the publisher of California Healthline. This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.