State, Local Governments Seek To Reduce Liabilities for Retiree Health Benefits
State and local governments have begun to take "aggressive steps" to reduce liabilities of more than $1 trillion for health benefits for about 25 million current and future retirees as a result of a new accounting rule that took effect on Friday, USA Today reports (Cauchon, USA Today, 12/18).
Under the rule, established by the Governmental Accounting Standards
Board, state and local governments for the first time must report their current and future liabilities for health and other benefits -- such as dental, vision and life insurance. State and local governments must pay their liabilities over a 30-year period (California Healthline, 11/9).
Annual health care costs for state and local government retirees will total at least $4.5 billion this year and up to $31.5 billion by 2019, according to a report by government consultant Steve Frates for the California HealthCare Foundation (Sheppard, Whittier Daily News , 12/18).
In response to the rule, state and local governments have begun to reduce retiree health benefits, allocate funds to cover future liabilities and shift costs to Medicare. For example:
- The West Virginia pension board on Wednesday plans to vote on a measure that would shift prescription drug coverage for retirees to Medicare;
- North Carolina will require state employees hired after Oct. 1 to work 20 years, rather than five years, to qualify for full health benefits;
- The San Diego City Council this month eliminated retiree health benefits for some city employees; and
- South Carolina Gov. Mark Sanford (R) plans to propose a $245 million trust fund to help cover liabilities for retiree health benefits, and Georgia, New York City, Vermont and Virginia have established or considered similar trust funds.
Charles Agerstrand, a retirement consultant for the Michigan Education Association, said, "These benefits are affordable as long as we do something now. If not, we're heading for a major collision" (USA Today, 12/18). 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.