NCPA - National Center for Policy Analysis


December 18, 2006

State and local governments are starting to take aggressive steps to reduce the enormous cost of providing health care benefits to retired teachers, police officers, firefighters and other public workers, says USA Today.

As 43 state legislatures prepare to convene next month, governments are cutting benefits, setting aside money to cover future costs and shifting expenses to the federal Medicare program.  The efforts are the first to address a liability of more than $1 trillion for providing medical care promised to about 25 million current and future retired state and local civil servants.

What governments are doing now:

  • West Virginia's state pension board is to vote Wednesday on shifting prescription-drug coverage for retirees to Medicare, a federal program; the change, along with making retirees pay more, would slash the state's $8 billion unfunded liability to $5 billion.
  • In North Carolina, civil servants hired after Oct. 1 will have to work 20 years before qualifying for 100 percent state-paid medical coverage; previously, workers had to wait only five years.
  • In South Carolina, Republican Gov. Mark Sanford's next budget will propose putting $245 million in a new trust fund dedicated to retiree medical benefits; Georgia, Vermont, Virginia and New York City also have started trust funds or plan to create them.

Because of soaring revenue, states haven't had to cut other spending or raise taxes to cover retiree medical care.  State and local government attempts to shed retiree medical costs could be bad news for Medicare because many now pay retiree health care costs that would otherwise be paid by the federal government.

Medicare's financial situation already is deteriorating.  The government's audited financial statement, released Friday, reported that Medicare's unfunded liability rose $2.4 trillion in 2006 to $32.3 trillion.

Source: Dennis Cauchon, "States struggle to cover retirees; Medical liabilities exceed $1 trillion," USA Today, December 18, 2006.

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