The State Worker

$74 billion tab looms for state’s retiree health costs through 2045

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.

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.