Published: Jun 12, 2012 04:32 PM
Modified: Jun 12, 2012 07:07 PM
Meet retirees health care costs head-on
For retired government employees, free health insurance can help make their budget. But for governments providing the insurance, it can end up being a budget buster.Across the country, state and local governments are grappling with the rising costs of providing health benefits to retired workers. Unlike pensions, which are usually funded in advance, health care is normally handled as a pay as you go expense, meaning the bills for yesterdays employees are paid from todays tax revenues.The number of public sector retirees is growing, as are medical care costs. Thats a harmful combination to a communitys fiscal health. A few are facing bankruptcy because of these prior obligations. Many are seeing post-employment benefit costs crowd out current services.Our local governments are facing a similar threat. Orange County, Chapel Hill and Carrboro each offer different retirement health benefit plans. But all of them use the pay as you go approach. Rather than save for future costs, they simply pay the bills as they come in.Those future bills will be staggering. According to most recent projections, the combined projected health care liability for these three governments is $140,261,463 over their former employees lifetimes. That amount now exceeds their total outstanding general obligation bonds and thats just for people who have already retired. Every new retiree will add years or decades of cost. To be properly prepared for those expenses, government standards recommendputting aside at least $9,765,091. To date, none of our local governments have reserved a cent.Its easy to understand why elected officials havent tackled this issue. They prefer to spend money on services with immediate impact. Its the same reason they so willingly defer maintenance on public assets or eagerly take on distantobligations like the inordinately expensive light rail train. Future problems will be someone elses problems. County managers tend to have a longer view. And they are worried. In this years budget discussion Orange County Manager Frank Clifton exhorted, You have a huge outstanding unfunded liability, and thats been there. Im telling you seriously, you need to move forward on that issue. If you dont, it will hinder the countys ability to borrow money in the future.He wants to earmark $3,000,000 to pay for future costs. He also wants to look at dramatic changes to the benefits being offered.As well he should. Orange County has one of the most generous health plans in the nation. Employees can retire with just ten years service and have full health benefits paid for life.Chapel Hill Manager Roger Stancil has been concerned for a while, which led to a 2010 change in benefits offered. Prior to that, like in Orange County, retirees received free health insurance, but needed to work 20 years to qualify. After 2010, new employees contribute to a retirement health savings account instead. That change will help keep the problem from getting worse. But like a snake that swallows a meal too large for its girth, Chapel Hill will have a long, painful digestion of its prior commitments. To help ease that a bit, Stancil is recommending $400,000 be set aside next year to pay for future costs.Carrboros retirement health plan is similar to Chapel Hills old one, requiring 20 years service for coverage. It remains to be seen whether the towns new manager will consider future changes, or budget accommodations.As costs inevitably grow, there are only three ways to address them if one hasnt saved up in advance: Raise taxes, borrow more, or cut services. None of those are sustainable options, nor are they politically palatable. Better to take some preventive medicine today, even if it doesnt taste good. The cure will be far worse later if we dont.
Mark Zimmerman is a Chapel Hill business owner. He can be reached at email@example.com.