States may be the level of government best able to put the nation on solid footing in the years ahead, particularly in the area of health care reform, Center President/CEO Elizabeth Kellar told attendees at the National Conference of State Legislatures Legislative Summit on June 28.
Although states have unfunded retiree health care liabilities of about $558 billion, including for teachers, Kellar pointed out that some states are in much better shape than others.
States that owe least, most
A 2009 Center issue brief, The Crisis in State and Local Government Retiree Health Benefit Plans: Myths and Realities, found that six states had the lowest unfunded liabilities:
- North Dakota ($31 million)
- Wyoming ($72 million)
- South Dakota ($76 million)
- Iowa ($220 million)
- Oregon ($264 million)
- Kansas ($293 million)
By contrast, states with the highest unfunded liabilities have obligations in the billions of dollars, sometimes because they have a much larger workforce and sometimes because of the level of benefits they offer:
- New Jersey ($68.8 billion)
- New York ($49.7 billion)
- California ($47.9 billion)
- Illinois ($24.2 billion)
- North Carolina ($23.8 billion)
- Connecticut ($21.7 billion)
States are addressing the fiscal challenges, Kellar said, having instituted wellness programs, state-wide health care pools, disease prevention and chronic care strategies, along with a variety of cost containment efforts.
Benefit plans changing
The Center’s surveys have also found that:
- 17 states may limit subsidies to future retirees;
- three states are likely to issue OPEB bonds;
- three states are likely to increase taxes or fees.
Kellar pointed to setting up a trust as one strategy to finance retiree health obligations. While health care trusts may be difficult to fund, states that have created them have set aside substantial assets to pay for retiree health benefits. But many states are reducing benefit levels, driven by fiscal pressures and the fact that state constitutions do not protect retiree health promises as they do pensions.
It is not easy to manage tiered benefits, with one set of benefits for retirees, another for current employees, and sometimes a third tier of reduced benefits for new hires, Kellar observed. She emphasized that pay-as-you-go is not a long-term solution and reminded attendees that small steps now can pay big dividends later.
“Your leadership in putting health care on a solid path,” Kellar concluded, “may be the single most important contribution you can make to improve the health of the people in your state as well as to improve the fiscal health of your state government.”
