Health and dental benefits bill for retirees of California state employees stand at $48.2 billion
27 02 09 - 17:48
Report: State spending too much for retiree health care
By Jon Ortiz - The Sacramento Bee
The bill for California's state retiree health and dental benefits stands at $48.2 billion – and the government's shortsighted payment plan is making the obligation far more costly than it needs to be, according to a new report.
Retired state workers who receive their health coverage through the California Public Employees' Retirement System will cost the state – and by extension, taxpayers – $3.7 billion for the 2008-09 fiscal year.
And unless California starts paying more than the bare minimum needed to cover retiree health costs each year, the annual obligation will rise to $5.3 billion by 2017-18, according to an analysis by Chicago-based actuarial firm Gabriel Roeder Smith & Co. The state's total obligation, the report says, will rise to $71 billion in 10 years.
The report illustrates the challenges ahead for California to keep its public employee retirement promises. State Controller John Chiang released the estimate on Tuesday, less than a week after legislators passed a budget with spending cuts, tax increases and borrowing to close a $40 billion budget gap.
"Even as the state grapples with a decline in revenues during hard times, it is important for lawmakers to begin crafting a long-range plan to meet this future obligation," Chiang said in a press statement.
For years, the state has paid just enough to cover retiree health care each year. The pay-as-you-go practice is akin to making minimum payments on a credit card bill; you pay more over time than if you pay extra with each installment.
If the state had been paying the costs of all future retiree benefits and invested the money at about an 8 percent return, the annual cost would be about $2.7 billion this year, according to the estimates. In 2017-18 the yearly cost would be about $3.2 billion, about $2 billion less than what will be due under the pay-as-you-go system.
The estimate considers retiree benefits for the 392,000 state employees and retirees covered this year by Cal-PERS health plans.
Chiang, who sits on the CalPERS board, has called for the state to begin setting aside money that could be invested with the returns used to offset retiree health benefit costs.
Groups seeking changes to public employee benefits, such as the California Foundation for Fiscal Responsibility, say that pouring more money into retiree health care won't fix things long term.
The Citrus Heights-based group has called for increasing the fully benefitted retirement age for newly hired civil service employees. Safety employees such as the Highway Patrol can now retire at age 50. Nonsafety workers can retire at 55.
"We're encouraging people to retire early just by giving them health care coverage before they qualify for Medicare," said Marcia Fritz, the foundation's vice president. "The question we need to confront is what are we trying to accomplish with these benefits?"