Focus on Public Pension Shortfall Overlooks Future Public Employee Health Insurance Costs

From Wirepoints:

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.

Read the full report here:


Focus on Public Pension Shortfall Overlooks Future Public Employee Health Insurance Costs — 15 Comments

  1. Look at the City of Crystal Lake and its pension liabilities and who’s responsible as the “Mayor” has been in office for since before the turn of the Century, City Manager since 2004 and City Council since 2008.

    There’s something going on at City Hall and the multiple attempts to keep political challenger’s off the ballot is a clear sign that if another is elected Mayor or Council member that the problems they’ve created will then be exposed and those involved held to the consequences !

    Just my opinion !

  2. In other words, by using current tax dollars to subsidize abortions in this state we are passing on to our children and grandchildren the cost of future public sector pensions AND the cost of subsidizing their total healthcare cost.

    This is the inheritance that legislators such as our current LIAR County Chairman has guaranteed for your children and grandchildren.

    The best part is guess what? The voters just increased the power of the Political power that can claim credit for the mess.

    Oh! Republicans are not off the hook either – locally Tryon, Althoff and other past GOP legislators were crickets while this happened.

    Even worse, apparently Althoff Tryon and Koehler are conspiring with the LIAR to increase the power of the LIAR at tje County.

  3. How much do you make?

    Send it in.

    How much longer can this charade continue?

  4. Who has been in charge for the vast majority of the last 5 decades in the Illinois Legislature?

    Bankruptcy for the State. Extreme haircuts for all current government employees and retirees of every kind. Rewrite of part of Illinois Constitution. Slashing of benefits, pensions and salaries of the highest compensated government employees and retirees. 401K type plans for all government workers.

  5. Watch for goofball and reckless Democrat type groups to resurface an idea to impose an annual 1 percent tax on the real value of ALL real estate in Illinois. Houses and businesses.

  6. No, a state can’t go bankrupt.

    Under the US Constitution, it is sovereign.

    Chapter 9 bankruptcy only applies to municipalities, and states are explicitly excluded.

    Further, bankruptcy is for those entities that do not have the ability to raise money in order to pay their bills, such as non home-rule units of government.

    The state of Illinois has the unlimited power to raise taxes.

    I’m not saying it’s good public policy, I’m saying they have the authority to do so.

    It might will damage the state economically, but they would certainly be able to pay all of their bills.

    Illinois is on its way to becoming the next Mississippi.

  7. OPEBs are generally a hidden cost.

    Woodstock CUSD200 taxpayers are not aware, unless they do a deep dive into CAFRs, that over 700 employees are eligible for this costly benefit spanning decades, with taxable property owners SOLELY responsible for payment.

    Woodstock taxpayers do not seem aware that TIF enables tax evasion of this liability.

    Woodstock taxpayers do not seem aware that as much as 5% of OPEBs accrued as liabilities of Woodstock taxpayers are due to
    teachers hired to teach out-of-district tuition students at Clay Academy at a discount to actual cost, in addition to the accrued OPEB liabilities described above.

  8. States have defaulted before.

    It happened a bunch of times in the 19th century.

    The last default was Arkansas in 1933.

    Most of the debt was eventually paid, but there was a lot of pain.

    I really think Illinois is heading down that path, and it will be a very interesting Separation of Powers question if the Illinois State Courts try to force the General Assembly to come up with the money – according to the Illinois
    Constitution:”A member shall not be held to answer before any other tribunal for any speech or debate, written or oral, in either house.”

    The Illinois Constitution does not grant the Courts the power to raise taxes on their own.

  9. Default is different from bankruptcy.

    Several states defaulted on railroad associated debt in the latter part of the 19th century.

    The only state to default in the twentieth century was Arkansas in the 1930s, and it was on bonds secured by gasoline taxes, not the general taxing authority of the state.

  10. Public sector employees should receive the same salaries and benefits as private sector employees.

    No more, no less.

    That means a 401k and no employer-funded health care after retirement regardless of how many Constitutional amendments are needed.

    Start the cry – 401k or the State of Illinois withers and dies!

  11. Why is it every time I try going to “older posts” or “search” I’m taken directly to the McHenry County Blog page instead ?

Leave a Reply

Your email address will not be published. Required fields are marked *