Huge bill for public
retirees hits soon
Medical benefit
cost could top $1 trillion
http://www.usatoday.com/printedition/news/20060518/1a_lede18.art.htm
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.