NCPA - National Center for Policy Analysis


February 17, 2009

With bills coming due as baby boomers start to retire, states, cities, school districts and other governments may be forced to raise taxes, cut benefits or both.

Currently, state governments have unfunded obligations worth $445 billion to subsidize health insurance for teachers, judges and other civil servants after they retire.  Cities, school systems, park districts, water authorities and other local governments have even bigger obligations, in excess of $500 billion.  Even though states will receive a large chunk of the $787 billion stimulus, that money is not aimed at long-term costs.

And that doesn't bode well for medical benefits for retirees, says USA Today:

  • The federal government has a $1.2 trillion unfunded obligation to pay medical costs for retired federal workers and military personnel.
  • Medicare and Social Security push the nation's unfunded promises above $50 trillion.
  • Last year, for the first time, states and big cities were required to report the value of medical benefits promised to current and future retirees; state and local governments employ 20 million, and an additional 7 million are retired.

So, what are the states doing?

  • Dover, New Hampshire will see its retiree health care costs triple to $3 million annually in the next 10 years as the number of retirees grows, according to its actuary.
  • When Rhode Island trimmed retiree medical benefits in October, 1,291 workers -- 9 percent of the state's workforce -- retired to keep the more generous old health plan.
  • Alaska, Minnesota, Pennsylvania and Utah are among states that set aside money last year to prepare for future medical costs.

Source: Dennis Cauchon, "Benefits neglected for civil retirees," USA Today, February 16, 2009.

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