NCPA - National Center for Policy Analysis


February 16, 2010

Gov. Jennifer Granholm wants to end some health benefits for state employees who retire after Sept. 30.  The Michigan House has voted to eliminate retiree health benefits for lawmakers who take office starting in 2011.  Lawmakers in Lansing are engaged in a huge evasion, one that leaves taxpayers on the hook for billions to pay benefits they likely can't claim for themselves, says the Lansing State Journal. 

It's time to change that.  It's time for the state to stop subsidizing health benefits for former workers who are still of working age, says the Journal: 

  • A traditional government retirement package has two parts: a pension and "other benefits" -- the most expensive of which is health care.
  • A 2007 Pew Center on the States' report put Michigan's obligation at $8 billion; that's money Michigan is committed to spending, but does not have. 

If policies don't change, taxpayers will have to cough it up in future years, though, says the Journal: 

  • Twenty years ago, it was common for large private firms (20 employees or more) to offer post-retirement benefits beyond a pension.
  • Since then, the Kaiser Family Foundation reports, there's been a huge drop in the practice; fewer than a third of large firms now offers this kind of aid to former workers.
  • In the private sector at least, the clear trend is that if people under age 65 want subsidized health insurance, they should expect to be full-time employees. 

One question that arises on retirement benefits is, "Aren't these benefits owed?" 

Well, pension benefits are contractual obligations. The state can't suddenly say it won't pay pensions. (Nor does it have to since, unlike on health, the state's pre-funded pension account is in good shape.)  Health benefits are another matter, says the Journal. 

State Rep. Mark Meadows (D-East Lansing), has worked on retirement issues in the Legislature and served in the Attorney General's Office before that.  He sees no constitutional barrier to changes to retiree health benefits. 

Of course there are huge political barriers, so it's easier to make cuts to the future, even if such an approach leaves Michigan in a multi-billion-dollar hole. 

Source: Editorial, "End health benefits for all state retirees," Lansing State Journal, February 14, 2010. 


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