State Releases Cost Estimate for Retired Employees’ Health Care

Imagine getting a bill for $37 billion. Thanks to a Governmental Accounting Standards Board cost-disclosure rule, Texas recently learned that’s how much it owes to provide health care for retired public educators and state employees for the next 30 years.

The cost estimate takes into account the size of the workforce, double-digit percentage increases in the cost of health care, and an ever-increasing pool of retirees. The Teacher Retirement System estimates that the tab for educators’ long-term health care costs will be $19.1 billion. State employees account for $17.7 billion of the estimate.

The state regularly sets aside funds for pensions for public employees, but has paid for retiree health care as costs are incurred. Texas treats future health care costs differently because the state constitution doesn’t guarantee health insurance benefits for retirees. In essence, the state makes a “good faith” effort to provide health coverage, but there’s no legal obligation for it to do so.

As health care costs continue to climb, educators are anxious that retiree health insurance benefits could be reduced or even eliminated if the Legislature decides that the state can no longer afford its share of the cost.

There’s no question that the eye-popping estimate has gotten the attention of state lawmakers. Speaker Tom Craddick directed the House Pension and Investments Committee to “explore options for funding” retiree benefits before the 81st Legislative Session, which convenes in January 2009. Sen. Robert Duncan (R-Lubbock), a pension and insurance expert, said that legislators could opt to start setting aside funds to cover part of the cost, but that public employees and school districts may also be asked to pay more.

—“Starting tab for state retiree health costs: $36.8 billion,” Austin American-Statesman, Nov. 30, 2007.
—“For retirees, no guarantee of future health coverage,” Austin American-Statesman, Dec. 7, 2007.