Lawmakers should slow down Gov. Jerry Brown’s move to overhaul state employee and retiree health benefits, a new report says, and hold hearings despite the governor’s desire to settle the issue via union negotiations.
The nonpartisan Legislative Analyst’s Office also suggested that Brown’s plan to have employees pay for retiree benefits may be unfair, insufficient and even unnecessary, given the upheaval in the U.S. medical-care system.
With tens of billions of dollars over the next 30 years and the long-term consequences of altering state employees’ health benefits in the balance, the stakes are “too important for the Legislature not to be an active and informed participant in its development,” the analyst’s report stated.
State retiree medical costs are among the government’s fastest-growing expenses, according to the Brown administration. In 2001, those benefits accounted for $458 million, or 0.6 percent of the general fund budget. This year, the bills will total $1.9 billion or about 1.6 percent of the budget. Active employees’ insurance will cost about $3 billion this year. In 30 years, the state’s cost in today’s dollars will equal about $7 billion.
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With a few exceptions, the state and state employees set aside nothing for retiree medical costs. The pay-as-you-go practice has stacked up a $72 billion obligation in anticipated medical costs for current and future retirees over the next 30 years – and that’s before inflation.
Brown wants the unions to agree to a new standard that would pre-fund retiree health benefits by splitting the cost between employers and employees. The administration would impose similar terms on non-union employees. The money would go into a trust fund and grow, untouched for 30 years. Meanwhile, the state would continue to separately pay the unfunded benefits as it does now.
Since Brown wants to reach these goals through contract negotiations, the Legislature’s role would be limited because lawmakers can only ratify or reject the contracts, not amend them.
The analyst points out that the state’s retiree health benefit was added in 1961, before the federal government created the Medicare program and further expanded health care in the last few years.
Today, however, prospective employees might place less value on retiree health benefits because they will likely retire closer to Medicare eligibility because state pension benefits aren’t as generous. Those who do retire before Medicare eligibility “can purchase health insurance on the Exchange,” according to the report.
Other unaddressed consequences of Brown’s plan, according to the LAO, include the likely pressure to increase salaries by a commensurate amount; the effect on recruiting and retaining employees; and whether all state workers should contribute to a retiree benefit that they won’t receive if they leave service too soon to quality for it.
Current state employees qualify for a partial state subsidy of their retiree medical premiums after 10 years of service and receive the full subsidy if they retire after 20 years or more with the government. Brown has proposed extending the qualifying thresholds to 15 years and 25 years.
Call Jon Ortiz, Bee Capitol Bureau, (916) 321-1043.