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Massachusetts Faces Unfunded Retiree Health Care Costs

Ruzanna Harutyunyan's picture

Massachusetts faces an estimated $13.3 billion in unfunded retiree health care costs over the next three decades, according to a report by a commission studying the issue, the Boston Globe reports. The seven-member panel comprises four lawmakers, the state treasurer, the state budget chief and state pension fund chief. Under the current retiree health care system, lawmakers set aside about $275 million annually to cover the health care expenses for the state's 50,000 retirees. Residents who retired before 1994 contribute 10% of their health insurance costs, and residents who retired after 1994 contribute 15% of their insurance costs.

According to the report, immediate action to provide some additional funding annually could decrease the unfunded retiree health liability to $7.5 billion. The panel recommended the immediate adoption of a plan to increase payments for retiree health care by about $70 million in 2009, increasing to more than $1.6 billion in 2026. According to the report, the state must provide an additional $200 million annually for the next 20 years to cover the unfunded costs.

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The commission recommended that the state use funds from its 1998 settlement with tobacco companies, beginning with $70 million in 2009 and increasing that amount to $263 million over five years. In addition, after the state pays off its pension costs in 2026, lawmakers should allocate the estimated $1 billion that was used to pay for pensions to retiree health care, the report said. The commission also recommended using at least half of future state budget surpluses toward retiree health coverage.

State lawmakers said that they might have to cut other programs or reduce benefits for future retirees to fund retiree health care. State Sen. Steven Panagiotakos (D), a commission member and the state Senate's budget chief, said, "It's going to make the prioritization and choices even more difficult as we go forward, about what to keep and what to cut." State Rep. Jay Kaufman (D), co-chair of the commission, said the report had at least "tackled the challenge of beginning to address how we are going to provide for public sector retirees." He said, "But as the report makes clear, it will take discipline, political will, and a lot of money to do this right," adding, "We dare not fail because the price and consequences of inaction are huge" (Levenson, Boston Globe, 8/6).

Reprinted with permission from kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign up for email delivery at kaisernetwork.org/email . The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation. © 2007 Advisory Board Company and Kaiser Family Foundation. All rights reserved.