The State Worker

Controller Chiang’s proposal would pay down retiree medical costs

State Controller John Chiang at the Capitol Bureau.
State Controller John Chiang at the Capitol Bureau. The Sacramento Bee

California’s tab for state government retirees’ future medical and dental care has soared to nearly $72 billion, prompting State Controller John Chiang on Tuesday to propose a five-year plan to whittle down a chunk of the unfunded obligation.

The news also gave Department of Finance spokesman H.D. Palmer an opening to announce Gov. Jerry Brown’s budget proposal, expected out before Jan. 10, will include “a plan to address this unfunded liability – and sustain health benefits for retirees for the long term.”

Currently, the state pays medical bills as they come up and sets nothing aside for future expenses. Analysts view the pay-as-you-go method as the most expensive way to do business, akin to paying only the interest on a credit card bill while continuing to make purchases on the account.

The state’s unfunded retiree medical obligations jumped $7.2 billion from the $64.6 billion Chiang estimated a year ago, mostly due to new mortality estimates that show people live longer.

Chiang’s proposal envisions reducing the state’s $71.8 billion in future retiree medical and dental expenses by making larger contributions into a pension-fund-style investment account over five years. The funds would supplement the $1.8 billion the state spends annually on paying retiree medical bills.

In fiscal 2015-16, for example, an extra $250 million payment would cut the state’s unfunded health liability by $3.2 billion. The supplemental payments would increase each year thereafter, reaching $1.7 billion in fiscal 2019-20.

Chiang estimates retiree health benefits for all current government employees at that time would be pre-funded. The extra payments also would cut the unfunded liability by $19.5 billion, according to the controller’s calculations.

The state would then need to continue making payments to keep the benefits fully funded. Failing that, the unfunded liability would again begin to grow.

California Highway Patrol officers, state physicians, dentists and heavy-machinery operators – about 17,000 of the government’s 224,000 workers – already have contracts requiring that they contribute to their retiree health benefits.

Call Jon Ortiz, Bee Capitol Bureau, (916) 321-1043.

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