The State Worker

Chronicling civil-service life for California state workers

February 24, 2012
John Chiang: California needs to pay down retiree health costs

Controller John Chiang today urged the state to scrape up at least a little extra cash to pay down state retiree health and dental benefit costs, which his latest commissioned report pegs at $62.1 billion over 30 years.

The figure, a snapshot of the unfunded health obligations on June 30,2011, represents a 5 percent increase over $59.9 billion identified a year earlier. Actuaries with Gabriel Roeder Smith & Co. had expected an even higher number, but CalPERS' push to trim health costs through a variety of programs, fewer and less expensive claims and lower-than-anticipated use of services have trimmed expenses.

For the most part, the state is covering those costs year to year, paying retiree health bills as they come up. A more prudent course, Chiang said, is to treat the long-term benefit expenses like the state treats pensions: set aside money now, invest it and then use the returns on investments to defray future retiree medical and dental costs.

"Even slight amounts set aside will help lessen the impact on future generations, and ensure that we fulfill our responsibilities to the state workforce and our taxpayers," Chiang said in a press release.

Only members of the California Association of Highway Patrolmen have contributed to their retiree health benefits. International Union of Operating Engineers members in Bargaining Unit 12 and members of the Union of American Physicians and Dentists will begin contributing to their retiree health benefits later this year.

(For more details about those contributions, click here for a summary of CAHP's agreement, here for the IUOE deal and here for the UAPD terms.)

The 2011-12 state budget sets aside $1.7 billion for retirees' health and dental benefits, enough to cover the year. The state would need to tack on another $3 billion to start fully paying down the future cost of benefits for current employees and retirees, according to the controller's estimates.

Given the state's projected $9.2 billion budget shortfall in 2012-13, that's just not going to happen. But, according to Chiang's estimates, if the state paid another $160 million obligations, it would cut $2.7 billion off the 30-year liabilty.

This chart shows the impact of prefunding retiree health costs. You can download the Gabriel Roeder report here.

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About The State Worker

Jon Ortiz The Author

Jon Ortiz launched The State Worker blog and a companion column in 2008 to cover state government from the perspective of California government employees. Every day he filters the news through a single question: "What does this mean for state workers?" Join Ortiz for updates and debate on state pay, benefits, pensions, contracts and jobs. Contact him at (916) 321-1043 and at jortiz@sacbee.com.

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