State, Local Entities Fall Short on Funding for Retiree Health Benefits
State and local governments face an estimated $1 trillion in unfunded health care obligations for retired civil workers, according to a USA Today survey of state financial reports.
USA Today found that states have unfunded obligations totaling $445 billion for health coverage of current and future retirees (Cauchon , USA Today, 2/16). Nebraska is the only state in the U.S. that does not subsidize health coverage for government retirees, and it has no unfunded health care obligations (Cauchon , USA Today, 2/16).
Local governments face unfunded obligations of more than $500 billion, although the exact figure is unknown, according to USA Today (Cauchon , USA Today, 2/16). There are 89,437 branches of local government in the U.S., according to the Census Bureau.
USA Today surveyed 25 midsize to large local governments and found a retiree medical obligation of $126 billion (Cauchon , USA Today, 2/16).
States and large cities last year for the first time were required to report the value of medical benefits promised to current and future retirees. State and local governments employ 20 million people, and there are an additional seven million retired state and local government workers.
According to USA Today, most governments subsidize health coverage for retired workers, and retiree health coverage became common in the 1980s, sometimes in exchange for reduced pay raises.
Kenneth Rust, finance chief for Portland, Ore., said the practice "seemed inexpensive" but it "will become a crippling cost for some governments in the future."
To address the obligations, some states, such as Rhode Island, are cutting health benefits for retirees. According to USA Today, most governments have the authority to reduce or eliminate retiree health coverage.
Other states -- such as Alaska, Minnesota, Pennsylvania and Utah -- have set aside money to pay for future retiree health care costs.
USA Today reports that the unfunded "medical costs are part of a larger burden taxpayers face in providing health care for an aging population."The federal government has unfunded obligations of $1.2 trillion to pay for health care for retired federal workers and military personnel, and Medicare and Social Security obligations push the total to more than $50 trillion (Cauchon , USA Today, 2/16). 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.