NCPA - National Center for Policy Analysis


February 7, 2007

The long-term price tag for post-retirement health insurance the state has promised thousands of working and retired teachers and public employees is $78 billion -- nearly four times what experts estimated as recently as last year, a new report projects.

The new calculation, which works out to an average of almost $8,500 for every state resident, opens a new crack in New Jersey's financial foundation just as Gov. Jon Corzine is preparing to present a state budget and negotiate benefits and contracts with state employees.

  • The $78 billion represents the total expected cost of retirement health benefits not yet funded by the state but promised to 325,000 teachers and 150,000 state employees and their families.
  • A task force created by former Gov. Richard Codey pegged this "unfunded liability" at about $20 billion last year.
  • The consultants project the state would have to make payments of about $7.8 billion each year to start reducing the outstanding benefits debt; that would amount to dedicating about one- fourth of the entire state budget to the retiree health benefits program.

Reasons for the soaring cost include the rising price of health insurance, and a hike in the number of state employees and teachers retiring and qualifying for the benefits.  But a change in state policy, designed to free up funds for tax breaks and other state expenditures in 1994, exacerbated the problem. 

The health benefits cost is on top of what the state must contribute to pay off a deficit in the pension system for state and local employees and teachers.  Addressing that deficit, which totaled $18 billion last year, already costs taxpayers about $2 billion a year.

Source: Dunstan McNichol, "State health benefits tab swells to $78B; Coverage promised for retired workers, teachers estimated to cost $8,500 per Jerseyan," New Jersey Star-Ledger, February 07, 2007.

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