The $44 Billion Price Tag of State Retiree Health Insurance

March 1, 2012

The state of Illinois faces impending fiscal issues for the retirement plans of its state workers.  In addition to granting retirees substantial pensions, the state also provides near-free medical coverage that is far more generous than the private sector and other states.  The growth of these liabilities over the next few decades will leave Illinois in a perilous position, says Jonathan Ingram, a health care policy analyst with the Illinois Policy Institute.

  • The state has promised, in today's dollars, nearly $44 billion in retiree health benefits to government employees over the next 30 years.
  • A large source of this expense is the overly generous nature of the health benefits, which require only very low worker contributions to premiums (9 percent for the state's largest retiree health program).
  • As of yet, the state has not set aside any of its revenues to fund those future outlays.
  • Furthermore, these unfunded liabilities are growing two and a half times faster than state revenues, lending to the policies' unsustainability.
  • Within 30 years, retiree health benefits will cost state taxpayers $30 billion annually.

This trend is unsustainable and will require substantial policy reform if state insolvency is to be averted.  To this end, state lawmakers should consider a number of changes for near-term retirees and new hires.

  • By benchmarking retiree contributions to the average contributions required in other states, the state would be able to cut down its own payments and save taxpayers $40 billion over the course of the next 30 years.
  • Illinois should also cut benefits to those who retire early -- this would create proper disincentives to early retirement and reduce the size of that class of retirees that are most costly.
  • Finally, the state should strongly consider ending this benefit for new retirees entirely -- the state already bridges the age gap from retirement to Medicare eligibility, and retirees would therefore be taken care of upon retirement even if the state contributed nothing.

So long as Illinois stays on its current track, its financial situation will continue to escalate in severity.  These serious reforms will have to be considered if the state is to have any chance of reclaiming the long-term viability of its retirement programs.

Source: Jonathan Ingram, "Diagnosis: Disaster -- The $44 Billion Price Tag of State Retiree Health Insurance," Illinois Policy Institute, February 28, 2012.

For text:

http://illinoispolicy.org/news/article.asp?ArticleSource=4698

 

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