Mass Cities and Towns Drowning in Future Health Care Liabilities for Retirees

Today’s Managing Health Care Costs Indicator is $18.7 billion

The Massachusetts Taxpayer’s Organization  released a report today documenting the future retiree health care liability for the 50 largest cities and towns in the Commonwealth.

It’s a depressing read.

Boston has underfunded its future retiree health care liability by over $4.5 billion – and to catch up through tax increases, each Boston household would have to pay almost $100,000 more in taxes over the next 30 years.   The current underfunding represents a liability of $10,000 for every Boston resident.

We’re finding out about this because of a new regulation, GASB 45 (Government Accounting Standards Board), which forces municipalities to calculate and disclose their future liabilities for retiree health care.  This is much like the FASB 106 – the 1990 regulation (by the financial accounting standard board) which required publicly traded companies to treat post-retirement health care costs as deferred compensation, which must be recognized when the obligation is incurred.   FASB 106 led to most employers moving away from generous post-retirement health benefits – as GASB 45 is likely to do with state and local governments.

The Mass Taxpayer Organization suggests that cities and towns:
·        Raise retirement ages
·        Raise service length for post-retiree health care coverage
·        Raise cost-sharing in post-retiree programs
·        Insist that eligible retirees transfer their primary insurance to Medicare
·        Not offer coverage for spouses of retirees

A number of cities and towns did not pay into the Medicare Trust Fund prior to 1984, so retirees from before that time are not eligible for Medicare.

All these approaches decrease coverage for government retirees – and many will need to be phased in over years or even decades.   The state has imposed many onerous requirements on cities and towns – historically municipalities have had little freedom to negotiate cost sharing. On the other hand, many have offered benefits even more generous than the generous benefits required by the state.

One suggestion that the Mass Taxpayer Organization has omitted:  we need to better manage the costs of health care. If health care inflation can be brought to a substantially lower level, the unfunded liabilities will look substantially less onerous.