California should terminate unnecessary insurance subsidies for retired state workers

The California Legislature is considering $2.5 billion of cuts to child care, adult dental care, hospitals, parks, courts, social services and preschools. Instead, lawmakers should cut $2.5 billion of unnecessary insurance subsidies for retired state employees. 

California pays 100% of the health insurance premiums for retired state employees and 90% of the premiums for retirees’ family members. Known as “Other Post-Employment Benefits,” the insurance subsidies are not necessary. That’s because retired state employees, like all Californians, are already entitled to large federal and state insurance subsidies, including new middle class subsidies enacted into law by the Legislature last year that provide support for all Californians with incomes of up to $75,000 per year and $150,000 for families of four. 

No other state comes close to California in providing such extravagant Other Post-Employment Benefits subsidies to retired state employees. Colorado caps its subsidies for retired state employees at $230 per month for retirees under the age of 65 and $115 per month for retirees 65 and over. Oregon caps subsidies for retirees at $60 per month and closed its system to employees who started work after 2003. 

As a result, California incurs $7 billion of annual OPEB expense as compared to less than $50 million in Colorado and even less in Oregon. Worse, because California pays for its expense with a combination of cash – $2.7 billion this year – and debt, the state has built up Other Post-Employment Benefits debt of $85 billion, exceeding the state’s outstanding general obligation bonds that, unlike OPEB debt, were approved by voters. 

California’s largesse toward its retired employees is even more unreasonable when compared to other states since no other state supplies middle class health insurance subsidies to their residents. 

If California simply adopted Colorado’s subsidies, California could save $2.5 billion per year in cash, end the annual issuance of billions of new OPEB debt, and eliminate more than $80 billion of debt. Even more could be saved under Oregon’s approach. 

The state isn’t the only public enterprise providing unnecessary Other Post-Employment Benefits subsidies. Every year the University of California, the City of San Francisco, San Francisco Unified School District and BART unnecessarily incur OPEB expenses of more than $1 billion, $400 million, $70 million and $50 million. 

UC alone could save $450 million in cash next year from eliminating Other Post-Employment Benefits, an amount greater than the cut for UC proposed in Gov. Gavin Newsom’s Revised Budget. 

Those big OPEB spenders should emulate the examples set not only by Oregon and Colorado but also Ventura Unified School District, Stockton and Glendale, which eliminated their OPEB programs to help preserve services for students and residents and jobs and wages for active employees. 

The Legislature has no excuse for cutting programs to save rich and unnecessary subsidies for retired state employees and their families who are already sufficiently protected by federal and state health insurance subsidies. If those subsidies are good enough for middle class Californians, they should be good enough for retired state employees. 

The Legislature should eliminate the state’s Other Post-Employment Benefits program and require the state’s public colleges, universities, schools, cities, towns and agencies to do the same. 

_____

David Crane is president of Govern For California and lecturer in Public Policy at Stanford University, davidc@governforcalifornia.org. He wrote this commentary for CalMatters.