As the public cost of health care for retired government workers soars, policymakers should explore alternatives, including the Affordable Care Act exchanges.
While the rollout of the federal Obamacare website has not inspired confidence in much of the country, the program ultimately could be a solution for the ever-escalating public cost of retiree medical bills.
In the past, health insurance was a big obstacle to early retirement and job mobility for people in the 55-to-64 age group. Now, those individuals can shop for coverage on California's new health insurance website, which is working well.
That option could help state and local governments. State and local governments, school districts and public universities typically provide health insurance to their retired workers until they qualify for Medicare at 65. Some continue benefits after Medicare age.
Obamacare may make providing health coverage for pre-65 retirees no longer necessary. With the advent of ACA, public workers and governments should explore having pre-Medicare retirees buy health coverage as individuals through the exchanges as an alternative to employer health coverage.
Retiree health care is a costly benefit. The Legislative Analyst's Office last month reported that the state general fund will spend $1.8 billion this year. That amount will grow by 10% a year, nearly doubling to $3.3 billion by 2019-20. That's not counting costs incurred by cities, counties, school districts and the University of California.
At a minimum, government officials should explore moving away from retiree health benefits for future hires, and look at alternatives for today's retirees.
Beverly Hills offers an innovative way to buy out existing retiree health benefits on a voluntary basis. That city sold bonds and used the money to fund a voluntary exchange program, called the Alternative Retiree Medical Program, in which employees could get a cash payment now — the net present actuarial value of their retiree benefit — in exchange for giving up city-financed health care benefits during retirement. With 58% of employees accepting the exchange, the city shaved $260 million off the cost of unfunded liabilities over 40 years.
Trying to shift existing retirees is a dicey strategy being challenged in the courts. But government should not spend more on post-employment benefits than it pays for people who are working.