New study dings state for not prefunding retiree health subsidies
A new Pew Center report says Washington state has a $6.9 billion unfunded liability for health-care benefits provided to retired government and public-school workers.
Seattle Times Olympia bureau
OLYMPIA — A little-known health benefit provided to retired government workers and K-12 employees in Washington state could cost an estimated $6.9 billion over the lives of those who are eligible to receive it.
The long-term cost of the benefit, which is not prefunded like pensions are, was noted in a Pew Center on the States report released this week. The benefit provides retirees with subsidies for their health care.
The report says Washington is among the best states in the nation when it comes to funding government pensions, but fares worse for funding retiree health-care obligations.
It lists Washington as among 22 states with "serious concerns" over their retiree health-care obligations, because they don't set enough money aside to cover benefits long term.
Washington state officials, however, took issue with the Pew Center calling this state's retiree health-care costs a liability that should be funded like a pension, rather than paid for year by year.
"The state has always taken the stand that this is not a requirement. The state does contribute some money to defray the cost of retiree health care, but there is no obligation to do so," said Dave Nelsen, the legal and legislative services manager for the state Department of Retirement Systems. "If the general fund gets to a point where they can't afford to do so, there's nothing that would require them ... to pay anything."
However, any move to eliminate health benefits for retired public employees clearly would run into stiff opposition from unions.
"I don't think legislators should start talking about taking away health benefits for folks who worked their entire lives for this state," said Tim Welch, a spokesman for the Washington Federation of State Employees.
The $6.9 billion figure used by the Pew Center comes from a report released late last year by the state actuary. The number is based on the value of benefits provided today, with inflation, for the lifetimes of all currently employed and retired public-school and government workers who are eligible.
The vast majority are retired state and K-12 workers, but the pool also includes former local-government employees.
Retirees can receive two types of benefits.
Retired workers eligible for Medicare, generally those 65 or older, currently receive up to $150 a month to help defray the cost of their health-care premiums. The state Health Care Authority estimates more than half of the cost goes toward coverage of prescription drugs.
In the current two-year budget, the state is paying around $120 million a year for the benefit. However, the funding comes from a mix of accounts and is partially offset by federal dollars.
If this benefit were ended, the state general fund — which pays for the bulk of operating expenses such as education and health care — would receive only a small portion of the savings, according to the Health Care Authority.
The agency said it could not provide an exact dollar amount.
A separate benefit is provided to workers who retire early, before they're eligible for Medicare.
Those employees are allowed to purchase insurance at the same cost at which the state buys it for all state employees.
Because the retired workers are part of the same pool as the younger, active state employees, their insurance premiums are lower than they would be otherwise. But they have to pay the full premiums out of pocket.
If those retirees were not part of the overall insurance pool, the state expects it would spend less money to provide health care for active state workers.
The value of that benefit is projected at around $55 million a year in the current two-year budget. But it's not clear if the state actually would save that much money if the benefit were eliminated.
The Health Care Authority says around 88,000 retirees and their dependents use one of the benefits.
Lawmakers interviewed recall little discussion in the Legislature regarding the subsidies.
That's also been true on state Select Committee on Pension Policy, which oversees the state pension system, said Rep. Barbara Bailey, R-Oak Harbor, vice chair of the committee.
"We haven't talked much about this benefit because it's not part of the pension," she said.
The state actuary's office said the last briefing to lawmakers, in the agency's records, was in 2007.
The actuary's report projects nearly 250,000 currently employed government and K-12 workers will be eligible for the benefits. However, only 65 percent of government workers and 50 percent of K-12 employees are expected to use them, based on past experience.
The benefits became available to state workers in 1970. K-12 workers were granted access in the 1990s.
Andrew Garber: 360-236-8266