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March 2012 Brief: Volume 19, Number 7

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We Need Fair and Sound Fiscal Health, Too

 

by Deborah D. Thornton

 

Health care benefits are a hot topic this spring. A major concern is not only benefits and costs for the private sector, but also the government workers. On the health-care retiree benefit side, many states – 19 in FY2009 – have zero funds set aside to fund these benefits. Another seven have only funded 25 percent of their liability, according to a report by the Pew Center on the States.[1] In total, the states only have about $31 billion, or 5 percent of the expected liability, set aside.[2] With the continuing growth in health-care expenses, this will be a significant problem for these states and their taxpayers in the future. Many states, including Kentucky, New Hampshire, New Jersey, and South Carolina, are making changes in the structure and payment plans of retiree healthcare benefits. They are attempting to better manage this long-term liability.[3]

 

Only two states, Arizona and Oregon, have over 50 percent of their health-care liabilities funded. Iowa is one of the states, according to the Pew data, which has no funds set aside to pay current or future retiree health-care benefits. Instead, state government has been paying these expenses from current tax collections. As of FY2009, the amount anticipated for health-care expenses of current and future government retirees in Iowa was just over $538 million, or over half a billion dollars.[4] At current budget levels, this is about one-twelfth of all state government spending. Retiree health-care costs are a significant liability to future taxpayers, especially as the government employee population continues to age and retire with high expectations for medical treatment.

 

Based on this expectation, the “required” annual contribution for Iowa retiree health-care costs in FY2009 was $56.8 million. This money should have been set aside in reserves, as the Iowa Public Employees Retirement System (IPERS) money is, to grow and be available to pay the health-care costs of retirees. In FY2009, only 42 percent of that amount ($23.8 million) was paid in.[5]

 

Additionally, most Iowa state government workers do not pay a monthly health-care insurance premium. We are one of only six states that pay 100 percent of health-care insurance costs for employees and their families. Approximately 84 percent of state government workers take advantage of this major benefit and pay nothing.[6]

 

According to the 12th annual Iowa “Employer Benefits Study,” done by David P. Lind and Associates, the average premium paid by private-sector workers in Iowa for their family health-care plans is $346.66 per month, up from only $180 a decade ago.[7] The average amount paid by private-sector workers for an “individual only” plan is $70.

 

In contrast, those few state government workers who are required to help pay for their individual insurance pay only $14 per month. This is $56 less per month than an average private-sector worker.[8]

 

Nationwide, 38 percent of the states require their single employees and/or retirees to pay from 29 percent to over 60 percent of their PPO health insurance premium, according to the long-time human resources benefits consulting group The Segal Company. For employees with families, 56 percent of states require at least a 29 percent personal contribution.[9]

 

The FY2013 budget proposed by the Iowa House Republicans calls for all state workers, including Legislators and other elected officials, to pay $200 a month, or $100 every two weeks, toward the cost of their health insurance. This will still be less than the almost $350 per month the average Iowa family working in the private sector pays – and less than most state government employees in other states pay.

 

According to a statement by Speaker of the House Kraig Paulsen, “Taxpayers can no longer afford to carry the full burden for every state employee’s health insurance. Asking all employees, including state Legislators, to contribute a reasonable $200 monthly payment towards their own health care is the right thing to do.”[10]

 

Though the Great Recession is officially over, private-sector unemployment in Iowa remains over 5 percent. The Occupy Wall Street and union protestors are continuing to talk about “fairness” and treating the 99 percent “fairly.” When private-sector workers and families are paying $350 per month or more towards their health insurance, it seems only “fair” that government workers pay at least $200. They could be asked to pay as much as 60 percent, as is done in some states.

 

Speaker Paulsen and the Republicans in the Iowa House of Representatives are on the right path. At the very least, they should adopt this plan for themselves and other elected officials – and set a good example for the rest. Then they should address the unfunded liability of the retiree health care. If these two things are done, the state will continue to move toward sound fiscal health and treat all taxpayers fairly.

 

Endnotes

[1] “The Widening Gap: The Great Recession’s Impact on State Pension and Retiree Health Care Costs,” Pew Center on the States, p. 6.
[2] “The Trillion Dollar Gap Grows Wider,” The Pew Center on the States, <http://www.pewcenteronthestates.org/initiatives_detail.aspx?initiativeID=85899358839> accessed on February 13, 2012.
[3] “Pension and Health Care Reform in the States,” Pew Center on the States, <http://www.pewcenteronthestates.org/initiatives_detail.aspx?initiativeID=61599> accessed on February 13, 2012.
[4] Retiree Health Care Benefits, “The Trillion Dollar Gap Grows Wider,” Pew Center on the States, <http://www.pewcenteronthestates.org/initiatives_detail.aspx?initiativeID=85899358839> accessed on February 13, 2012.
[5] “The Widening Gap,” p. 6.
[6] John Stephenson, “Iowa’s departing governor approves a six percent wage increase for state workers,” State Budget Solutions, November 23, 2010, <http://www.statebudgetsolutions.org/blog/detail/iowas-departing-governor-approves-a-six-percent-wage-increase-for-state-workers> accessed on December 7, 2011.
[7] David P. Lind and Associates, LLC, “2010 Iowa Employer Benefits Study,” p. 19, <http://www.dplaconsulting.com/pdf/research/2010-Iowa-Employer-Benefits-Study.pdf> accessed on December 9, 2011.
[8] Stephenson.
[9] “2010 Study of State Employee Health Benefits,” The Segal Company, January 28, 2011, <http://www.segalco.com/publications/surveysandstudies/2010statestudy.pdf> accessed on February 13, 2012.
[10] Kraig Paulsen (Iowa House Speaker), “A Conservative Budget,” February 3, 2012, <http://kraigpaulsen.com/> accessed on February 8, 2012.

 

Deborah D. Thornton is a Research Analyst with Public Interest Institute, Mount Pleasant, Iowa. Contact her at Public.Interest.Institute@LimitedGovernment.org.

 

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