The Sea of Red Ink Grows Deeper: Public Employee Health Benefits

The need for pension reform comes down to math not ideology.  $72 billion in unfunded liabilities (even using generous accounting assumptions) rests squarely on the shoulders of Ohio taxpayers. On a per capita basis, every Ohioan is responsible for roughly $6,200 in unfunded pension debt.

But flying under the radar of this fundamental issue is an accompanying crisis with equally dire implications.  As Bloomberg recently reported, public retiree health care benefit costs have expanded exponentially in recent years, but states have set aside few funds for when the bills come due.

The extent of the unpreparedness is staggering.  In 2010, states were projected to owe $620 billion in future retiree health benefits—and they had money saved to cover four percent of that total.  As health care expenses grow and as life expectancy increases, the bills only grow larger.

Here’s how Ohio shakes out.

Ohio’s five public retirement systems have collective unfunded health care benefit liabilities of roughly $30.5 billion, according to their latest Comprehensive Annual Financial Reports.  Only 33.7 cents exist for every dollar in liabilities. Compared against these numbers, Ohio’s pension systems look relatively strong, with a 67 percent funded ratio.

In all fairness, Ohio is one of the better states at saving for public retiree health benefits.  But with over $30 billion in unfunded liabilities, this is still something we should be concerned about.

Discussion over how to mitigate the impending health care crisis is just beginning.  Proposed solutions have ranged from decreasing benefit payments, increasing the eligibility age, greater employee contributions and tax increases.  A key sticking point going forward will be legal challenges to cuts in current employee benefits.  As seen in California, cutting supposedly non-guaranteed benefits can prove challenging in the current legal envirnment.  In the end, it may be down to the taxpayer to bail out the system.

The key take away is that the public employee retirement crisis is not a pension issue alone.  In Ohio, total pension and health care benefit unfunded liabilities total over $100 billion.  The $6,200 weight on the backs of taxpayers grows to over $8,600 when health benefits are included.

While public pension reform has garnered significant attention, one eye must be kept on the impending health care crisis that is just appearing on the horizon.

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