New Jersey’s Health Care Liabilities for State, Local Government Retirees Total $69B, Study Shows

New Jersey's total health care liabilities for current and future public employees total $69 billion, according to a report by consulting firm Aon delivered to the State Health Benefits Program commission on Thursday, the Newark Star-Ledger reports (McNichol, Newark Star-Ledger, 7/27). A new Governmental Accounting Standards Board rule requires all public employers to report the cost of their health care liabilities. States must pay their liabilities over a 30-year period, and liabilities will count against net assets for states that do not allocate funds to cover the costs each year (Kaiser Daily Health Policy Report, 7/25).

According to the Aon report, retiree health care liabilities for the state government total $58 billion, and local governments' liabilities are $10.8 billion. New Jersey guarantees health care benefits for retired teachers, which most other states do not offer. The cost of health benefits for current and retired state employees is expected to reach $2.2 billion this year and is projected to increase in future years (Lu, Bergen Record, 7/27).

In 1994, the state stopped setting aside funds to cover future public employee benefits, and it has since exhausted the previous savings. According to Aon, New Jersey would need to set aside $6.3 billion in this year's budget to keep pace with long-term liabilities (Newark Star-Ledger, 7/17). New Jersey's 2007 state budget is $33.5 billion (Bergen Record, 7/27).

If the state were to establish a trust fund, its annual expense for benefits would equal about $3.5 billion per year, but if it did not, annual costs would be about $5.8 billion per year and continue to rise, according to Aon (Williams Walsh, New York Times, 7/27). Gov. Jon Corzine's (D) administration has said that given debt service, pension obligations and other costs of running the state government, little money remains to fund health benefits. Another potential way to boost the state's ability to cover retiree health care is to cut benefits. In contract talks this year, state workers agreed to contribute more toward the cost of health care (Burton, Philadelphia Inquirer, 7/27).

Reaction
Corzine called the report a "body blow," adding, "There's a challenge for the taxpayers ahead regardless of who the governor is" (Newark Star-Ledger, 7/26). William Dressel, executive director of the New Jersey League of Municipalities, said the liabilities are a "ticking time bomb" (Bergen Record, 7/27).

Labor unions are concerned by the report, according to the Times (New York Times, 7/27). Rae Roeder, head of Communication Workers of America Local 1033, said, 'We ought to look at prefunding instead of spending as you go" (Philadelphia Inquirer, 7/27).

Michael Morfe, Aon's senior vice president, said advanced funding "is not required. Pay as you go can continue to be maintained." However, he noted that prefunding would save the state billions of dollars in the long term (Newark Star-Ledger, 7/27). Thomas Vincz, spokesperson for New Jersey Department of the Treasury, said, "Any discussion of prefunding would be made in the context of many other large liabilities" (Bergen Record, 7/27).