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Huge bill for public retirees hits soon
By Dennis Cauchon, USA TODAY
Taxpayers will soon get a surprise bill that could exceed $1 trillion for the cost of paying future medical benefits for state and local workers who retire.
Retiree medical costs are the biggest long-term challenge that state and local governments face. By comparison, state and local pensions have an unfunded liability of about $500 billion.
State and local governments have set aside $2.5 trillion to help pay pension benefits for 19 million civil servants and 7 million retirees. But they have set aside almost nothing to pay for retiree medical benefits.
"Taxpayers will revolt when they realize the enormous cost of this," Minnesota State Auditor Pat Anderson says. She says the financial burdens on local governments will be so great they will put pressure on the federal government to nationalize health care, which she opposes.
New accounting rules require that governments, starting next year, put a price tag on the value of medical benefits promised to civil servants when they retire. New York City's liability, for example, approaches $50 billion. The city's total budget last year was $53 billion.
"It's no exaggeration to say that elected officials are shocked, absolutely shocked, by the size of these liabilities," says Donald Rueckert Jr., senior vice president and actuary at Aon Consulting, an insurance broker.
The federal government also has a $2.3 trillion unfunded liability for medical and disability benefits promised to civil servants and military personnel who retire. The costs are not the nation's biggest financial problem. Medicare has a $33.4 trillion unfunded liability. Social Security has a $4.6 trillion shortfall.
The impact on taxpayers of retiree medical care will vary widely. Minneapolis has no liability because it doesn't offer retiree medical benefits. Duluth, Minn., has a burden equal to about $8,000 per household for the free lifetime medical benefits the city promised workers and their families.
The new accounting rules don't require governments to do anything about retiree costs. But governments will come under pressure from lenders and others to act. "If this problem is ignored, that will be a negative factor when we determine credit ratings," says Standard & Poor's credit analyst Parry Young.
Corporations implemented a similar accounting rule in 1993. The result was a drastic reduction in the number of companies offering medical benefits to retirees.
Governments have less freedom to cut retiree health care because most benefits were negotiated in union contracts. Public employee unions plan to fight attempts to reduce retiree medical benefits.
New York City Mayor Michael Bloomberg plans to set $1 billion aside this year for retiree benefits.
By Dennis Cauchon, USA TODAY
Taxpayers will soon get a surprise bill that could exceed $1 trillion for the cost of paying future medical benefits for state and local workers who retire.
Retiree medical costs are the biggest long-term challenge that state and local governments face. By comparison, state and local pensions have an unfunded liability of about $500 billion.
State and local governments have set aside $2.5 trillion to help pay pension benefits for 19 million civil servants and 7 million retirees. But they have set aside almost nothing to pay for retiree medical benefits.
"Taxpayers will revolt when they realize the enormous cost of this," Minnesota State Auditor Pat Anderson says. She says the financial burdens on local governments will be so great they will put pressure on the federal government to nationalize health care, which she opposes.
New accounting rules require that governments, starting next year, put a price tag on the value of medical benefits promised to civil servants when they retire. New York City's liability, for example, approaches $50 billion. The city's total budget last year was $53 billion.
"It's no exaggeration to say that elected officials are shocked, absolutely shocked, by the size of these liabilities," says Donald Rueckert Jr., senior vice president and actuary at Aon Consulting, an insurance broker.
The federal government also has a $2.3 trillion unfunded liability for medical and disability benefits promised to civil servants and military personnel who retire. The costs are not the nation's biggest financial problem. Medicare has a $33.4 trillion unfunded liability. Social Security has a $4.6 trillion shortfall.
The impact on taxpayers of retiree medical care will vary widely. Minneapolis has no liability because it doesn't offer retiree medical benefits. Duluth, Minn., has a burden equal to about $8,000 per household for the free lifetime medical benefits the city promised workers and their families.
The new accounting rules don't require governments to do anything about retiree costs. But governments will come under pressure from lenders and others to act. "If this problem is ignored, that will be a negative factor when we determine credit ratings," says Standard & Poor's credit analyst Parry Young.
Corporations implemented a similar accounting rule in 1993. The result was a drastic reduction in the number of companies offering medical benefits to retirees.
Governments have less freedom to cut retiree health care because most benefits were negotiated in union contracts. Public employee unions plan to fight attempts to reduce retiree medical benefits.
New York City Mayor Michael Bloomberg plans to set $1 billion aside this year for retiree benefits.
