What can you buy with $1 trillion?
According to Stephen T. McElhaney, an
actuary and principal of Mercer Human
Resources, a consulting firm that advises
state and local governments on benefits, the
nation’s total obligation for promised health
care benefits to retired state and local
government employees may equate to $1
trillion.
Three years ago the city of Duluth,
Minnesota decided to have an actuary
calculate the costs associated with providing
the level of free health care the city promised
to all of its retired employees, their spouses,
and their children to age 26. The total was a
staggering $178 million – more than double
the city’s operating budget. The city recently
asked the actuary to provide an updated
figure. She came back with a whopping $280
million – a 57% increase in a three year
period.
It is anticipated this same sad story is about
to play out for state and local governments
across the country. For years, government
employees have been promised liberal
medical benefits, but few governments, if
any, have kept tabs on the associated
expense.
All that is about to change as the
Governmental Accounting Standards Board
(GASB) has issued a new accounting rule
scheduled to go into effect in less than two
years. Most entities budget for health care a
year at a time. However, under the new
accounting rule, even though government
entities will still not have to set aside money
to ensure obligations are met, they will be
required to outline a plan for supplying
monies to fulfill promises made to retirees. If
they don’t set aside such funds, their credit
ratings may fall, making borrowing money
and selling bonds much more difficult.
Source: The New York Times, 12-11-05
