California faces a $74.1 billion obligation to cover state retirees’ medical expenses over the next three decades, according to a new report released by state Controller Betty Yee.
The figure, which captures unfunded retiree health care costs as of mid-2015, grew nearly $2.4 billion from the year before. It does not account for the impact of future inflation.
Still, the increase was $1.5 billion less than actuaries anticipated a year earlier. Insurance claims grew more slowly than expected, while changes to how health care is delivered and assumptions about long-term trends lowered the liability by $1.76 billion, actuaries estimated. Against that, demographic shifts among retirees added more than $250 million to the debt figure.
The state pays retiree medical expenses as they come up, about $1.9 billion for the current fiscal year. But since the pay-as-you-go policy doesn’t set aside anything for promised benefits, the annual costs increase as more state employees retire and need health care.
Sign Up and Save
Get six months of free digital access to The Sacramento Bee
The pay-today-forget-tomorrow practice also dramatically hikes the state’s unfunded future medical commitments to its former employees. Without changes, Yee estimates, long-term liabilities will balloon in current dollars to more than $100 billion in four years and to $300 billion by fiscal 2047-28.
Gov. Jerry Brown wants to eliminate the entire liability in less than 30 years by requiring all state employees and employers put money into a retiree health benefits fund. Like pensions, the return on invested contributions would pay promised benefits.
Brown’s plan would save the state more than $240 billion in unfunded liabilities, according to Yee’s report.
The Democratic governor is bargaining retiree health contributions with state employee unions.