Reason Foundation

Reason Foundation

Report: States Face $558 Billion in Unfunded Retiree Health Care Liabilities

Leonard Gilroy
July 28, 2009, 6:03pm

As if the ongoing fiscal crunch and looming public pension crisis weren't already bad enough for states, a new report from the Center for State and Local Government Excellence estimates that state governments are facing unfunded retiree health care liabilities of a whopping $558 billion:

This report is the first systematic (entire workforce) assessment of the level of OPEB (other post-employment benefits) liabilities of US states and a sample of localities.

Key findings of the report include:

• States have unfunded liabilities for retiree health care of about $558 billion.
• State plans differ substantially in their generosity, coverage, and outstanding liabilities.
• Unfunded actuarial accrued liabilities (UAAL) for many governments are large in absolute value and relative to total state expenditures, debt, and per capita income of the state. For others they are not.
• Actuarial statements reveal substantial differences in total unfunded retiree health care liabilities. This is a function of work force size, plan generosity, and the portion of health care costs paid by the employer.
• Most state and local governments, however, have adopted various cost containment, cost shedding, and cost sharing policies, including retiree premium contributions, higher deductibles, and higher co-payments. Some have curtailed benefits for future retirees.
• Preventive medicine and wellness programs are catching on in the states, but most to date are limited in scope.
• State and local governments report they are more willing to consider changes in age and/or years of service requirements for retiree health care eligibility.

The PDF version of the report is available here.

Leonard Gilroy is Senior Managing Director, Pension Integrity Project &
Director of Government Reform

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