Accounting Changes to Add Half a Trillion Dollars to Retired Public Workers’ Health Costs

Actually “recognize” might be a better verb than “add”. Here’s Michael Rappaport of the Wall Street Journal:

retirement-crackedStates and cities could be forced to report at least half a trillion dollars of additional costs on their books under proposed rules that would shine a harsher light on the growing expense of retired workers’ health insurance and other benefits.

The move by the Governmental Accounting Standards Board is intended to give taxpayers, policy makers and investors more information about the toll that retirees’ promised benefits will take on states’ and cities’ finances.

The proposals come as governments grapple with rising costs for current and retired workers. Some states have been racked by legislative battles over how to trim costs. Several municipalities, including Detroit and Stockton, Calif., have filed for bankruptcy protection in recent years amid retiree-benefit burdens, among other issues.

According to a Standard & Poor’s report last fall, California and New York are among the states with the highest level of unfunded retiree-benefit obligations.

This is great news. As I’ve discussed before, government workers’ health costs have risen faster than Medicaid costs, and are 40 percent higher than private workers’ health costs. Getting a grip on retirees’ benefits will have a knock-on effect of disciplining the cost of current government workers’ benefits.

Comments (11)

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  1. Mitch says:

    so how long before they stop paying the retirees what they are owed?

    • Buddy says:

      Perhaps long enough to persuade future retirees to go the way of a defined contribution retirement plan as opposed to a defined benefit plan. Benefit plans cannot be cost effective much longer if costs balloon up as much as they have.

  2. Matthew says:

    This would make city and state government funds much more transparent and give them a better sense for just how in debt they are just to retirement benefits. Government workers usually get very generous benefits after retirement.

    • Thomas says:

      They also get out of control very quickly. Just look at Detroit as a great example of such.

  3. Brad says:

    Honestly, I am not even sure I want to see the full report from the new tax policies. The “TRILLION-DOLLAR” number might actually make me sick to my stomach. It is crazy that the government is actually allowing all of these costs to go unseen though. It is just another reason that federally-funded programs will fail and be beset by problems similar to those found in the VA health system.

  4. Bill B. says:

    “Getting a grip on retirees’ benefits will have a knock-on effect of disciplining the cost of current government workers’ benefits.”

    And hopefully help get a grip on outrageous government spending.

  5. Mr Freedom says:

    I’m reminded of what the great economist, Milton Friedman, used to always say: It’s always easier to spend someone else’s money!

    • SPM says:

      “government workers’ health costs have risen faster than Medicaid costs, and are 40 percent higher than private workers’ health costs.”

      government run programs always cost more than privately-run enterprises. Oh well, it’s just you and me, the taxpayer, who ultimately foot the bill.

  6. Bob Hertz says:

    Retiree health care will be seen someday as one of the down right stupidest benefits of all time.

    Assume a worker who retires at age 65. His public employer has been paying into Medicare for 40 years. (there are a few exceptions.) Medicare is more generous than about 80% of any employer plans. Why on earth should the employer keep covering someone who could go onto Medicare? Pure waste!

    Now assume a worker who retires at agr 55. Let’s not even deal with the fact that such a worker is among the most privileged of American laborers.

    Until the ACA, these people were a big problem. Their health insurance costs could swamp their pensions.

    Since the ACA, a worker from 55-65 making less than 400% of the poverty limit gets a subsidy to buy private coverage.

    What about the school principal who retires at age 55 with a pension of $80,000 a year? He does have a problem with health coverage. A lot of American workers,who must work until 67 or 70, would say to him, too friggin bad.

    • John R. Graham says:

      I know some folks, about 55-years old, who immigrated from Canada for graduate school and never returned. They are still Canadian citizens.

      They want to retire but not pay premiums. There income is too high to get Obamacare tax credits.

      Once they re-establish residency in Canada, they can get covered within three or six months by the single-payer health plan in their province, at zero or marginal premium.

      It’s all funded by taxpayers – and they haven’t paid taxes in Canada for about thirty years!