California faces $48.2 Billion bill to pay for retiree health and dental

SACRAMENTO
February 25, 2009 12:03am

California faces a $48.2 billion bill to pay for retired state employees’ health and dental benefits, says state Controller John Chiang.

“Even as the state grapples with a decline in revenues during difficult economic times, it is important for lawmakers to begin crafting a long-range plan to meet this future obligation in a way that will have the smallest impact on the state’s pocketbook,” says Mr. Chiang.

He says the state needs to set aside additional dollars that can be invested to “grow new funds” to pay for the health benefits in a fiscally prudent manner.

The unfunded obligation is $340 million more than the projected $47.8 billion obligation identified in the Controller’s first actuarial report, released in May 2007. That report expected this year’s obligation would rise to $50.4 billion, but that growth was avoided primarily by the California Public Employees’ Retirement System (CalPERS) use of surplus funds to reduce the increase in health care premium costs rates for the CalPERS self-funded plan.

Mr. Chiang says CalPERS, the nation’s largest public pension fund and the nation’s third largest purchaser of health care benefits, is making progress to address the growth of health care costs by improving pharmacy management with incentives to use generic drugs, working with partners to develop lower cost options, and promoting strategies for plan members to stay well and make smart choices about their health care.

In 2004, the Governmental Accounting Standards Board Statement 45 required states and local governments to publicly disclose the future costs of paying for post-employment benefits other than pensions for current state retirees and employees.

Although California’s actuarial obligation was not required to be disclosed until its financial statements for the 2007-08 fiscal year are released in March 2009, Mr. Chiang says he ordered the early release to give lawmakers the opportunity to include the unfunded obligation and health care cost containment in budget talks.

California currently pays for state retiree health benefits on a “pay-as-you-go” basis, meaning the costs are paid as they come due each year.