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State retiree health costs

States vary tremendously in the health care benefits offered to retirees. These differences are nicely spelled out in a May 2017 brief on retiree health care from the National Association of State Retirement Administrators and the Center for State & Local Government Excellence. (Retiree health benefits are, by far, the major component of Other Post-Employment Benefits (OPEB).

Here are five facts we pulled from the brief:

  • 80 percent of states provide health insurance to retirees under the age of 65; 70 percent do for those over 65. (For Medicare-eligible retirees, state coverage is typically secondary.)

  • Long-term liabilities for OPEB for the 50 states totaled about $626 billion in Fiscal Year 2015. Only 7 percent of those long-term liabilities are funded. The vast majority are paid for on a pay-as-you-go basis.

  • The state that has, by far, the most assets set aside for OPEB funding is Ohio, which administers retiree health programs for nearly all public employees in the state. Its $17 billion in assets represent 40 percent of the 50-state total. (We know from our own research that Ohio’s strong performance, relative to other states, stems from decisions made to set aside funding, starting in the 1970s.)

  • States vary tremendously in the size of their liabilities. Ten states bear about 77 percent of total OPEB unfunded liabilities. They are New Jersey, Texas, New York, California, Illinois, North Carolina, Connecticut, Pennsylvania, Florida and Massachusetts.

  • States spent about $18 billion on retiree health care costs in Fiscal Year 2015. This represented about 1.4 percent of state spending (excluding federal funds and bond funds). But the percentage varied greatly depending on the state. For New Jersey, OPEB costs were 5 percent of state spending. For slightly more than half the states, this category of spending represented less than 1 percent of the total.

The NASRA brief focuses on the cost of retiree health, the extent of state liabilities, and the relatively modest effort at funding. It also provides some detail on the difference in approach used — whether states pay their retirees health premiums (or a portion of the premium); whether they make a fixed contribution or whether they allow retirees to be part of their state insurance pool. This last option, which is generally the least costly for states, means that retirees have an “implicit subsidy” because they are included in a plan with younger, healthier individuals.

For more information on the benefit side, we recommend a report on funding trends and plan provisions, published a year ago by the State Health Care Spending Project, an initiative of the Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundation.


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