NCPA - National Center for Policy Analysis


December 21, 2006

Deep within a new 106-page document about a bond offering by the state of Pennsylvania is the first long-range estimate of the full cost of providing lifetime health benefits for tens of thousands of retired state workers.

Preliminary calculations put the price tag at $33.8 billion over the next 30 years -- a figure larger than the Pennsylvania government's entire budget for the current year.

The state Budget Office produced the draft figures late last week to show it is working toward meeting a requirement by national accounting rules to put a dollar figure on the total future costs of its generous retiree health care benefits:

  • The state government currently spends more than a half-billion dollars a year, on a pay-as-you-go basis, for retiree health care.
  • But the latest analysis puts the state's annual benefit liability at more than $1.1 billion, meaning much of the accumulating costs of coverage for retirees is going unfunded.

Among the municipalities that have done the math already is the city of York:

  • It estimates that its taxpayers should be contributing at least $5 million a year to cover the health benefits the city has promised its employees -- roughly what the taxpayers are already paying as their share of city pensions.
  • The insurance covers city retirees until they qualify for Medicare and then supplements the federal program.
  • Together, the pensions and health benefits would consume about one-third of the city's $32 million general-fund budget.

Pennsylvania officials caution that whatever the final figures are, it may not make much immediate difference in terms of state finances.  There is no requirement that the state contribute the full $1 billion-plus a year that it is now estimated would be needed to cover all its liabilities.

Source: "Pa.'s retiree health care liabilities top $1 billion a year," Associated Press/Pittsburgh Tribune-Review, December 20, 2006.

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