North Carolina is Deep in Health Care Debt

The financial troubles of state governments extends in many cases to their health plans. The John Locke Foundation, which focuses on North Carolina, recently conducted a radio interview with Rep. Dale Folwell, R-Forsyth, about the $28 billion in unfunded liabilities in the plan that serves state employees and retirees. The debt is 20% bigger than the operating budget for state government for an entire year.

Mortgaging Taxpayers for Government Employee Retirement Benefits

The Lansing State Journal calls for ending health bennies for all current state retirees! Welcome to the resistance movement,  LSJ. Now if we can also get on board the Senate Republicans who are trying to pile more debt onto taxpayers to give these bennies to age 50-something local government retirees.

Previous posts have described legislation passed by the Michigan House (House Bill 4075) and pending on the Senate floor (Senate Bill 927) to let local governments borrow to pay for retirement health insurance benefits that current and past officials have offered to local government employees.

The bills are different in one respect: The House version says, “The funding of postemployment health care benefits … shall constitute a contract to pay the postemployment health care benefits.” (Emphasis added.) The Senate bill contains just the opposite: “The funding of postemployment health care benefits … shall not constitute a contract.” (Emphasis added.)

Implicit in both versions is recognition that under current law there is no contractual obligation to pay, and as explained in a previous post, that “shall not constitute a contract” phrase is essentially weasel words, intended in part to obscure what’s really going on here, which is both Republicans and Democrats cooperating to transfer even more wealth from the people to the government class.

The phrase is just for show, because the local politicians doing the actual borrowing will almost certainly adopt other provisions to ensure that this money goes only to retired government workers’ health care benefits. (Many of those local pols will also continue to cut services and pursue tax hikes to provide ever more money to pour into this black hole, all the while crying a river of tears about ongoing “budget crises.”)

Nevertheless, this particular “not a contract” language is likely to become the theme of a legislative Kabuki dance, starring Senate Republicans and House Democrats, in which the former pound their chests and proclaim sanctimoniously that they will not support the measure without the provision, while the latter pretend just the opposite.

To the extent they get the chance to cover this issue, reporters will probably be drawn to the “controversy” over this detail, which seems meaningful on the surface. Unfortunately, they may miss the real import of the bills, which is more debt loaded onto taxpayers to pay for government employee benefits that appear not to be contractual, and that far exceed anything received by most private-sector workers.

In the end a bill may well pass with the Senate language, giving Republican politicians the “cover” they need to stick it to taxpayers once again, while both parties make another installment on paying off the most politically powerful special interest in the state: government employees and their unions.

They all may even get away with it, for one simple reason: No one will tell the folks back home.

(Psssst – folks back home: Are you listening?)

From Health “Reform” To Government Retiree Bailout

The behind-closed-doors squabble over the so-called “Cadillac” tax on high-cost health benefits is that it’s really about bailing out public-sector retiree health benefits, especially at the state and local level. Today’s New York Times reports that the tax won’t hit these folks until 2018. If I were a betting man I’d guess that that date will be pushed out even farther before this deal sees the light of day.

The tax is now going to hit plans that cost $8,500 for an individual and $23,000 for a family, which is way higher than the current cost of employer-based health benefits.

Until recently, state and local government employers did not have to report retiree health obligations on their balance sheets like private employers do. Of course, this meant that weak local authorities negotiating with strong union leaders resulted in unfunded liabilities that are unexpected and out of control. A recent study estimated such liabilities to be $558 billion nationwide, although the extent of the crisis varies a lot between states. There are no prizes for guessing that New York, New Jersey, and California fare the worst.

The Congressional Budget Office has yet to score this partial bailout of public-sector retiree benefits, but it will certainly send the (already debunked) pledge of deficit neutrality into the dustbin of history. Unless, of course, they figure out yet another tax to patch the hole in the CBO’s score.

Heath Fund for NC Employees has $28.6 Billion Gap

The State of North Carolina, like many units of government, pays health insurance benefits for its retired workers. But that promise could be weighing greatly on the state’s residents in years to come. That’s because “the state’s medical benefits for retirees have about a $28.6 billion hole in funding and need an annual contribution of about $2.7 billion to make up the difference.” To put that in perspective, that’s 13% of the state’s general fund–just to pay for service long since rendered.

As Sen. John Edward noted, there really are two Americas.

HSAs Save Money for Taxpayers, Civil Servants

The Mackinac Center for Public Policy explains that by moving state employees to a high-deductible/health savings account combination Michigan taxpayers could save over $100 million a year in reduced premium costs. That’s even after the state would contribute 75% of the maximum annual deposits to each worker’s HSA.

Employees benefit, too: “the maximum out-of-pocket expense with HSA/CDHPs is an absolute, hard number, while with traditional insurance, there is no limit to some of the co-pay amounts.”

Move State Employees into New Health Plans

With states grappling with deficits that won’t go away even when the economy picks up, what can they do? To start with, move public employees into high-deductible health plans that are matched with contributions to health savings accounts.

That combination would save taxpayer money, and potentially save government employees money as well.

Michael D. LaFaive and James Porterfield explain how it would work in Michigan. Moving state employees would save taxpayers $106 million in its first year; making the same change for public school teachers would  save even more, or $451 million.

Rent from a State Employee, Get Insurance

As I suggested in a post yesterday, Gov. Tom Kaine (D-Virginia) is throwing open the state employee insurance plan to anyone who lives with a state employee, not just domestic partners.

As the Washington Post put it, “Those adults could include heterosexual and homosexual partners, roommates, children and other family members, such as an aunt or grandfather.”

It may be true, as Kaine says, that the employee would have to pay the full premium of the add-on insured. But the idea doesn’t do much to address the problem of job lock, except perhaps make insurance a matter not of affordability but “who you know.”

Need Insurance? Move in with a Government Employee

Timothy M. Kaine, outgoing governor of Virginia, would like to expand health insurance coverage to more people. His idea: “adults without health benefits who share a home with an insured state worker would be eligible for coverage.”

The idea would effectively give spousal benefits to gay couples, which may end up drawing the most attention. But as I read the article in the Virginian Pilot, there’s nothing in the plan that requires any relationship other than living in the same house, as “adults without health benefits who share a home with an insured state worker would be eligible for coverage.” As the Pilot continues, it also “would apply to in-laws and to adult children who live with a parent who works for the state.”

How about brothers? Nieces? Ex-wives? The fraternity brother? There  might be no end.

Speaking in Defense of Benefits for Politicians

It’s time to do something unusual here–defend the politicians.

Health benefits enjoyed by state employees, including legislators, is coming under scrutiny these days, driven both by the civil service protection that public employees have and the rich benefits contained in their insurance plans.

There’s certainly a populist angle to that criticism, which is reflected in this allegedly straight-up news report from the St. Petersburg Times.

Beth Reinhard and Marc Caputo criticize lawmakers who oppose the particular health reform proposals moving their way through Congress while still getting health insurance on the public’s dime.

Hypocrites!

At least that’s what Reinhard and Caputo imply. But even legislators are employees of the people, and as such, deserve to be compensated for their work. Whether they should be paid $10 a year or $100,000 a year is a matter for debate of course.

Once it’s decided that the legislators will in fact be compensated, the question becomes which forms of payment their compensation will take. It may be in an annual salary, a per-diem allowance, a retirement package, an insurance package, or any combination. As the state’s chief financial officer put it, “When you have employees who pay no premiums, it’s a part of their total compensation package.”

The question for the public should be whether it is paying enough (or too much) in total compensation for its employees. Another fair question, if state employees receive some sort of health benefits plan, is what it will look like: Will it be high-deductible or low-deductible? Will it include co-pays or not? Will it be a defined-benefit plan or a defined-contribution plan?

There’s nothing inherently wrong with a public employee getting paid with a “Cadillac insurance plan,” as long as the cash payments are adjusted to take that into account.

Five ways health reform will hurt states

1. Medicaid enrollment: The Big Take would expand Medicaid rolls in North Carolina by 44 percent or more. The national average increase would be 37 percent.
2. Bad timing: The expansion of a program that is bankrupting states will more or less coincide with the end of federal money to bail states out from their current financial straits. So there is great concern about the effect it will have on the rest of state spending.
3. Lost choices: State employees who get insurance through the individual market may lose that option and be forced back into the state health plan, even obese smokers.
4. Higher taxes now: Since there is no effective way to control cost in any of the bills before Congress, costs will rise even faster for state employees and taxpayers.
5. Higher taxes later: Then we can watch the unfunded liability for future retiree health benefits explode, too.