Our estimate for the statewide $147 billion retiree health care debt is also a moving target.
Unlike the case with pensions, which are pre-funded with contributions from both the employer and employee, most governments never set up an account to pay for retiree health coverage (although some are beginning to set money aside). Many government agencies offer retirees a choice of medical plans and may even offer dental and vision coverage.
The employer often pays most of the premiums.
Take retired state workers and their families, for example. California chips in up to $21,000 a year per retiree for health insurance premiums. The state also offers its retirees dental insurance benefits. These health benefits last a lifetime.
State Controller Betty Yee has noted that the $91.5 billion health care liability for retired state workers is one of California’s largest long-term debts due to the increasing cost of premiums and demographic shifts as people live longer.
In 2001, the annual cost to provide state retiree health and dental benefits accounted for 0.6 percent of California’s general fund. In 2017, it grew to 1.6 percent of the budget.
Yee warned in 2016 that if no changes are made to the state’s method of funding retiree health care costs, the state of California’s unfunded liability would grow to $300 billion by 2047.