Public retiree health costs loom

State and local governments face paying hundreds of billions of dollars in the coming decades for their retirees' health care, an AP article reported Sept. 24. Governments have been funding retiree health costs on a pay-as-you-go annual basis. But new rules from the Government Accounting Standards Board (GASB), an independent organization that sets accounting standards for public agencies, will require disclosure of future retiree costs. "'When the numbers are produced, they're going to be shocking,' said Ronald Snell, director of state services for the National Conference of State Legislatures (NCSL)." The GASB rules were issued in 2004 and take effect in 2008.

The new rules stem from GASB's Statement 45 (see news release) and apply to "other post employment benefits" (OPEB), healthcare being the most common OPEB. GASB prepared a Q&A (pdf, 2p.) on Statement 45 and OPEB.

In February, the Federal Reserve Bank of Chicago issued a brief paper, OPEB: The 800 Pound Gorilla in the Room, providing a more technical perspective on the subject.

In California, the Legislative Analyst's Office (LAO) published two reports this year with the same title: "Retiree Health Care: A Growing Cost for Government," on Sept. 26, 2006 (pdf, 500KB, 26p.), and Feb. 17, 2006 (pdf, 452KB, 22p.).

In Hawaii, the most recent estimate of healthcare costs was reported by the Auditor in May 1999, in "Actuarial Study and Operational Audit of the Hawaii Public Employees Health Fund," Report No. 99-20 (pdf, 1.3MB, 118p.). In that report, the State and counties' liability for future retiree health benefits, as of July 1, 1998, was estimated at $4.5 billion; for the year 2013, it was $11.4 billion.