California Faced With $48 Billion in Retiree Health Care Costs

Providing retiree health care and dental benefits for California state employees will cost the state $48.2 billion, according to a report state Controller John Chiang (D) released yesterday, the Sacramento Business Journal reports (Anderson, Sacramento Business Journal, 2/24).

Chiang said the amount is $340 million more than previously projected, and the Associated Press reports that it would be even higher if CalPERS had not tapped into surplus funds to address rising health care costs (Associated Press, 2/24).

California currently does not prefund retiree health care benefits; it simply pays what is due each year.

The state will pay about $3.7 billion to CalPERS for retiree health care benefits for fiscal year 2008-2009 and will pay about $5.3 billion by FY 2017-2018 if it does not begin prefunding retiree benefits and using investment income to offset the actual cost of benefits.

Without changes, retiree health benefit costs will jump to $71 billion in 10 years, the report by Chicago-based actuarial firm Gabriel Roeder Smith & Co. projects.

Referring to the state's fiscal challenges, Chiang said, "Even as the state grapples with a decline in revenues during hard times, it is important for lawmakers to begin crafting a long-range plan to meet this future obligation."

Projections of the state's liability for retiree benefits have sparked calls to revise public employees' benefits.  For example, the California Foundation for Fiscal Responsibility advocates raising the retirement age for new state employees (Ortiz, Sacramento Bee, 2/25).