Why are retiree health costs an issue now?
Across the country, in both the public and private sectors, employers’ costs for retiree health benefits have been rising rapidly. Two main factors are attributed to these cost increases. First, healthcare premiums have been rising at an incredible rate over recent years. Second, the workforce is aging, as life expectancy is lengthening, increasing the number of retirees receiving these benefits. In states like California, recent changes in public pension systems have increased incentives for public employees to retire earlier, further contributing to an increase in the number of retirees receiving health benefits. Historically, nearly all governments have paid for health benefits for their retired employees on a pay-as-you-go basis each year. Generally, no funds have been set aside to address future benefit obligations. For governments, however, when retiree health costs rise faster than tax revenues, a larger and larger percentage of governmental revenues must be devoted to providing
Nearly all governments pay for health benefits for their retired employees on a pay-as-you-go basis each year. Generally, no funds have been set aside to address future benefit obligations. In California and across the country—in both the public and private sectors–employers’ costs for these retiree health benefits have been rising rapidly. There are two main reasons for these cost increases. First, health care premiums have been rising faster than inflation for many years. Second, the aging of the “baby boom” generation, as well as lengthening life expectancy, have increased the number of retirees receiving these benefits. In California, recent changes in public pension systems also have increased incentives for public employees to retire earlier, and this has contributed to an increase in the number of retirees receiving health benefits. For governments, when retiree health costs rise faster than the rate of growth of tax revenues, a larger and larger percentage of governmental reve
