State Faces $70B Health Care Liability
California's unfunded liability for providing health care benefits to retired public workers could be as much as $70 billion over the next 30 years, according to a Legislative Analyst's Office report released Friday, the Sacramento Bee reports.
The report estimates that it will cost about $5 billion more annually than the state pays now to fund current and future retiree health care costs over the next 30 years. The state currently pays about $1 billion per year for retiree health insurance premiums.
According to the report, the state faces a potential unfunded liability between $40 billion and $70 billion over the next three decades.
In addition, billions of dollars in future health costs for local governments and school districts could end up being shifted to the state, the report said.
The report recommends that the state contribute at least $1 billion annually to a reserve fund for future retiree health costs and consider benefit reductions for future retirees. The report also recommends hiring actuaries to better assess future costs (Benson, Sacramento Bee, 2/18).
The administration of Gov. Arnold Schwarzenegger (R) has proposed spending $252,000 to study future costs the state will incur, according to spokesperson Vince Sollitto. He said creating a reserve fund might be impractical because the state is "not yet even able to pay for ... current expenses" (Halper, Los Angeles Times, 2/18).
Assembly member Keith Stuart Richman (R-Grenada Hills) has drafted a proposed constitutional amendment to reform the state's pension system, including a provision that would withhold state-funded benefits until a retiree reaches the normal retirement age.
Democrats are likely to oppose any health care benefit reductions for state retirees, the Los Angeles Daily News reports (Sheppard, Los Angeles Daily News, 2/18).
The "longer Californians put off facing the pension and retiree health care payout crisis, the greater the pressure will be for quick-fix tax increases to cover the shortfalls," an Orange County Register editorial states. The editorial continues that such tax increases "only would threaten the economy and ... make the state's financial matters worse." The editorial concludes, "Reform is imperative, beginning with [Richman's] pension proposal and something similar for retiree health care" (Orange County Register, 2/20).
The LAO report is available online.
In related news, the Los Angeles Unified School District's estimated unfunded liabilities for providing lifetime health insurance benefits to retirees has increased to $10 billion, officials said Thursday, the Los Angeles Daily News reports. The current estimate is more than double projections made 18 months ago.
This year, retiree health benefits will cost the district $235 million from its operating budget, and costs are expected to increase by an estimated $790 million annually.
The district has not set aside money in investment accounts to cover the liability.
District officials are planning to meet with union leaders, retirees and others next month to address the problem. Possible solution could include setting aside funds for future costs and negotiating benefit cuts for current and future employees. Unions are expected to oppose any benefit reductions.
About 60% of school districts in California face similar unfunded liability problems, and about 75 districts "are facing the most severe costs" because they provide lifetime health benefits to retirees, the Daily News reports (Sheppard/Barrett, Los Angeles Daily News, 2/17).