March 03, 2009
Soaring costs of retiree health benefits
Once a public employee retires, New York taxpayers will subsidize his or her health insurance for the rest of his or her life, possibly as long as 60 years in the case of police officers and firefighters who retire in their early 40s.
Such future liabilities alarm state and local governments. New York State's unfunded liability for retiree health benefits is about $50 billion; New York City's $60 billion. Both fund retiree health benefits on a pay-as-you-go basis--as do most local governments and school districts.
Consider the fiscal impact for New York City alone. The New York Post reports:
Health-care costs for the city's municipal retirees, including more than 10,000 under age 49, are expected to balloon 128 percent over the next eight years siphoning even more cash from the Big Apple's already depleted coffers.
To blunt the hit, Mayor Bloomberg and the Municipal Labor Council are in tense talks to end free health insurance for city workers and some 271,000 retirees.
Payments from the city treasury for retiree benefits alone will hit $3.2 billion by 2016, up from $1.4 billion in 2008 and $700 million in 1998, according to the mayor's budget figures. In an op-ed Monday, Mayor Michael Bloomberg calls for "modest health-care reforms that ask city workers--who now contribute nothing to basic coverage--to pay 10 percent of their premiums, a level far below many private-sector workers."
Bloomberg says that combined with changes to the pension system for future city workers "would save the city more than $750 million a year. To put that in perspective, that's the equivalent of hiring 8,600 police officers."
While Bloomberg is negotiating the health benefits with city unions, he needs the state Legislature to enact pension changes for future hires.
At Bloomberg's urging, Governor David Paterson has proposed raising the minimum retirement age for future New York City police and firefighters to 50. Currently they can retire after 20 years. In addition, all city workers would be required to contribute to their pensions for their entire career. Some contribute only for the first 10 years of employment. Others contribute nothing. According to Bloomberg: These two critical steps...would save the city $7 billion over the next 20 years--beginning with $200 million in the next fiscal year. That's $200 million in taxes we don't have to raise and services we don't have to cut.
The Post weighs in with an editorial.
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