California promised health care for retired state workers. It owes $99 billion for that benefit
California has set aside about 4% of the money it estimates it will need to keep providing health and dental benefits for all state retirees, dependents and beneficiaries, according to a new report from the California State Controller’s Office.
As of June 30, 2021 the state estimated the retirement benefits would cost $99.5 billion, according to the report, which was published Monday. The figure incorporates estimates for how long retirees will live, how much treatment each person will need and how much medical costs will rise in the coming decades.
The state has about $4 billion in a trust fund created in 2007 to pay for the benefits, according to the report.
The difference in the two figures — $95 billion — is one of the state’s largest liabilities, along with pension obligations.
The retirement health liability grew only slightly in the fiscal year ending June 30, 2021 increasing by about $320 million, according to the report. In the two preceding years, it had grown by a combined $9.59 billion.
“I view this report with cautious optimism that our efforts have put California on the path to attaining our full-funding goals,” Controller Betty Yee said in a Monday news release. “Certainly inflation remains a global concern, but to have minimal growth in year-to-year net liability is incredibly encouraging.”
California pays roughly 100% of health insurance premiums for retirees hired before 2016, and 90% for their beneficiaries. For those hired more recently, the state pays roughly 80% for both retirees and beneficiaries. The actual percentages of the state’s contributions may be more or less than those figures depending on which health plans retirees select from CalPERS.
As of July 1, 2021, about 484,000 people were participating in the health insurance program, known as Other Post-Employment Benefits, or OPEB, according to Monday’s report.
California used to pay for the health benefits on a pay-as-you-go basis, but created the investment fund to support the liabilities in 2007 with a goal of fully funding the benefits by 2046.
Some state employees started contributing toward their future benefits in 2009, but many did not start making contributions until 2017 through union-negotiated agreements.
State employees contribute from 1.4% to 4.4% of their pay toward the retirement health benefits. Everyone pays roughly the same dollar amount, which means higher-paid employees contribute a smaller percentage. The state contributes an amount each year that is roughly the same as the employees’ total contribution.
Gov. Gavin Newsom paused state employees’ contributions to the trust fund, which shows up on state workers’ paychecks as CERBT, when he and the Legislature temporarily cut their pay from June 2020 through June 2021. The state planned to cover the $616 million that employees didn’t pay that year, according to the report.
This story was originally published August 3, 2022 at 6:00 AM.