Wirepoints Report: The real cost of pension and public retiree health insurance equals half of Illinois’ budget
Illinois owes $73 billion in retiree health insurance benefits for state workers, yet doesn’t have any money set aside to pay for it.
CHICAGO (12/5/18) – Every Illinois household is on the hook for $15,000 in unfunded retired state worker health insurance debts. Combine that with the state’s pension debts, and Illinois households are burdened with more than $67,000 in state retirement debt each.
That’s the conclusion from a new report by Wirepoints that analyzed the free and heavily-subsidized retiree health insurance Illinois gives state workers.
Illinois’ total cost of public worker retiree health benefits has grown by 80 percent over the past decade, reaching a record $73 billion as of 2016.
Illinois funds retiree health insurance on a “pay-go” basis. Instead of setting aside money for future costs like it does for pensions, the state pays retiree healthcare costs as they are incurred.
Wirepoints’ analysis finds this practice will squeeze Illinois’ future budgets as the state struggles to pay for constantly rising pension and retiree health insurance costs.
Payments for retiree health insurance will rise from $1 billion today to nearly $6 billion by 2045.
Other highlights from the report include:
Illinois provides 567,000 public sector workers and retirees with free or subsidized retiree health insurance benefits under
- the State Employee Group Insurance Program (SEGIP)
- the Teachers’ (TRIP) Retirement Insurance Program and
- the College Insurance Program (CIP)
- [also the General Assembly Retirement System and the Judges Retirement System]
Illinois provides extremely lucrative insurance benefits to its workers.
For example, many workers in SEGIP receive free retiree health insurance insurance after just 20 years of service.
[A deal increasing pension benefits for state employees engineered by former Governor Jim Edgar in exchange for one year without a pay raise. The same year, Missouri turned its public pension program into half defined benefit–what Illinois has–and half defined contribution–like a 401(k) in the private sector. When I informed Edgar’s staff of Missouri’s action in a briefing of Appropriations Committee Chairmen and Spokesmen, I was told it was too late to do that in Illinois.]
Three-quarters of state worker retirees get their insurance for free, a benefit worth $200,000 to $500,000 per retiree, depending on members’ age and years of service.
Members who retired prior to 1998 receive free insurance for having worked just 8 years. [While increasing state employees pension benefits, the legislation made it harder to get free health insurance.]
A 2011 study by Mercer found that free retiree health insurance is uncommon among public sector employers and almost unheard of in the private sector.
On average, state and local governments pay about half of their employees’ health premiums during retirement.
Illinois is not alone among states in treating retiree healthcare as a pay-as-you-go cost, but the depth of the state’s underfunding is extreme compared to most states.
As of 2016, each Illinoisan was on the hook for $5,700 in unfunded retiree health benefits, multiple times more than any of Illinois’ neighbors.
Ted Dabrowski, president of Wirepoints, says,
“No matter how you measure it, Illinois faces an extreme retirement crisis. Illinois’ $73 billion in unfunded retiree health insurance only piles onto the state’s already-impossible budget situation.”
Officially, retiree health and pension costs are already set to consume more than a quarter of the state budget over the next 30 years. But the state’s official numbers grossly underestimate Illinois’ true retirement costs.
According to a recent report by J.P. Morgan, if Illinois attempted to pay the real cost of pensions and retiree health insurance, the cost would would consume an untenable 50 percent of the state’s annual budget.
“That fact shows that without massive reforms, retirement costs are going to damage Illinois beyond repair. The state has no choice but to address its unfunded obligations,” Dabrowski says.