New Debt Target for State andLocal Debt: Health Care Benefits

Only 11 states have funded more than 10% of retiree health care liabilities. Thank you to Standard & Poors for tracking the data.

The potential lingering debt liabilities do not grow rosier if we look locally. According to a study by Pew Charitable trusts only 8 of the largest 30 cities fund 5% of retiree health benefits.

These health benefits fill the gap before medicare kicks in for the retirees. If state and local employs retire in their 50s, it could be 15 year of health benefits.

GASB saw the problem. 2014 GASB rules require that governments show these unfunded liabilities on their balance sheets. 

Suggested reforms:

• Link health-care to the number of years of service, above a threshold.
• Apply new reductions in health-care benefits to new or younger workers, while not impacting the health benefits of retired employees.

Wall Street Journal Opinion of Robert Pozen, Harvard Business School