Concerns Increase Over Cost of Retiree Health Benefits for State, Local Governments
State and local governments are studying the commitments they have made on retiree health benefits "because of a new accounting rule that is now requiring them to calculate, for the first time, the total value of the health benefits they have promised to retirees," the New York Times reports (Williams Walsh, New York Times, 11/6). The rule, imposed by the Governmental Accounting Standards Board, goes into effect in July 2007 and will require public agencies to report the current and future costs of health care and other benefits -- such as dental, vision and life insurance -- for the nation's estimated 24.5 million public employees. Under the rules, states must pay their liabilities over a 30-year period. If state officials choose not to earmark funds to cover the payments each year, the liabilities will count against the state's net assets (Kaiser Daily Health Policy Report, 11/2). The Times reports that "[l]ittle, if any, money has been set aside to fulfill these obligations." Mercer Human Resources estimates that cities and states have promised about $1.4 trillion in retiree health benefits, according to senior consultant Derek Guyton. Paul Maco, a partner in the law firm Vinson & Elkins who advises municipalities on the disclosure of retiree obligations, said he is concerned that local governments in some areas will find that their tax bases have eroded too much to fully fund the health benefits they have promised. Maco said, "The steel industry can shut down and close its plants, but that's hard for local governments," noting that industries might move out, but retired teachers and other public service workers would remain. According to the Times, some government agencies, such as the Chicago Transit Authority, have "set up a potentially explosive situation by arranging their retiree health claims to be paid directly out of their pension funds." Laurence Msall, president of the Chicago-based Civic Federation, said, "The taxpayers need to understand the seriousness of our situation," adding, "It's not a far-off crisis" (Williams Walsh, New York Times, 11/6).This is part of the KHN Morning Briefing, a summary of health policy coverage from major news organizations. Sign up for an email subscription.