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Benefits in the Balance: The Uncertain Future of Public Retiree Health Coverage

Posted on: Tuesday, 26 September 2006, 12:01 CDT

Local governments and school districts in California face rapidly rising

retiree health care costs for their employees, according to a report

released today by the California HealthCare Foundation (CHCF).

Beginning in 2007, a new government accounting standard will be phased

in, requiring public agencies to estimate and report the cost of future

retiree benefits, and drawing increased attention to retiree health care

spending. A summary report, "Benefits in the

Balance: The Uncertain Future of Public Retiree Health Coverage,"

was released Tuesday morning during a presentation at the

National Center for the Preservation of Democracy in Los Angeles. The

report draws from multiple sources, including a new CHCF-commissioned

analysis of public sector retiree health spending by the Center for

Government Analysis.

"This report is intended to stimulate a frank

conversation about this important issue," said

Mark D. Smith, M.D., M.B.A., president and CEO of the California

HealthCare Foundation. "The two most important

questions at this point are: 'How big a

problem is it?' and 'What

are the financing options open to public agencies?'"

Most public agencies do not set aside funds to pay for health coverage

promised to employees when they retire. Instead, each year they pay only

for existing retirees as bills come due. An aging workforce, increased

life expectancy, and health cost inflation are among the factors driving

up the costs of these benefits, raising questions about whether this "pay-as-you-go"

approach can be sustained over the long term.

Using conservative estimates, retiree health care costs for public

employees in California are expected to reach $31 billion per year by

2020, according to the Center for Government Analysis. Without adequate

planning, increased spending devoted to retiree health care could

eventually force school districts, counties, and cities to divert

resources from important community services.

Expenditures for retirees already comprise from 1 to 3 percent of many

public agency budgets. While some agencies do not pay for retiree

coverage at all, others spend as much as $10,000 annually for each

retiree. Public employees make up about 15 percent of the state's

workforce.

Obligations are significantly higher when retirement benefits promised

to public employees still on the job are considered. This year, the

state of California will spend about $1 billion, or 1 percent of its

general fund budget, for health coverage for retirees. In contrast, it

would require an estimated $6 billion per year for 30 years to fully

fund obligations to state employees.

"These accounting changes will illuminate the

significant and growing impact of retiree coverage on many public agency

budgets," said Marian Mulkey, M.P.P., M.P.H.,

senior program officer at the California HealthCare Foundation. "Difficult

decisions about spending priorities will follow."

"By confronting this issue head-on and

weighing options, elected officials, administrators, unions, and other

decision-makers can begin to identify remedies to this complex problem,''

said Dr. Smith.

Reports and related resources are available through the link below.

About the California HealthCare Foundation

The California HealthCare Foundation (CHCF), based in Oakland, is an

independent philanthropy committed to improving California's

health care delivery and financing systems. Visit www.chcf.org

for more information.

Source: Business Wire

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