Public-employee retiree healthcare is yet another cost adding pressure to the state budget. A new report by California Common Sense estimates unfunded liabilities outside pensions, known as Other Post-Employment Benefits (OPEBs), to total than $62 billion.
"One of the things that may have caught many analysts and the state off guard was the rising costs of health care," said Autumn Carter, executive director, California Common Sense.
The report found:
- Costs have doubled every five years since 1999.
- If nothing is done, OPEBs will consume the entire state budget within 35 years.
- And pre-funding health care benefits annually, instead of pay-as-you-go, would save the state $21 billion in the long run.
The state would love to put away money every year for retiree health care costs, just like it does for pensions, but it's unrealistic given California's budget crisis.
"We're cutting K-12 education. We're cutting higher education. We're cutting every program for the poor, every program for children and health care," said Service Employees International Union (SEIU) spokesperson Terry Brennand. "It makes very little sense to take $3 billion more out of the budget, pre-fund this and cut $3 billion deeper."
So the state can only continue to pay for retiree health care using pay-as-you-go, which Common Sense warns could have unpopular consequences.
"These costs will actually start to crowd out some of those critical services that taxpayers really do want to see," said Carter.
"Your other choice is to have people retire without health care benefits and become a burden on the system," said Brennand.
The governor and lawmakers say they'll tackle pension reform next month. But hardly any of the current proposals deal with taming retiree health care costs.