We have been learning more about the problem of underfunded pension plans of state and local governments. Another problem now is getting attention—these governments’ unfunded health insurance for retirees.
In a New York Post article summarizing a report by the Manhattan Institute’s Empire Center for New York State Policy, director E.J. McMahon notes, “Governments in [New York State] spend billions a year on health-insurance for their retired employees — a benefit that will never be available to the vast majority working in the private sector.” Here is the effect: “New York state and local governments’ liabilities for retiree health coverage run to the hundreds of billions of dollars…”
This is a national problem. Chris Edwards and Jagadeesh Gokhale of the Cato Institute estimated in 2006 that “state and local retiree health benefits are underfunded by $1.4 trillion nationwide.”
Leaving aside the federal government, one reason to restore limited government at the state and local level is that government is financially abusive and irresponsible. One form of the abuse is that government favors its own employees with higher compensation than in the private sector. One form of its irresponsibility is that it shifts obligations to future generations.
Government maintains a monopoly on its activities and relies on the power to tax. By contrast, the private sector has to compete with other firms, and has to earn its revenue. It has to moderate spending, including employee compensation, in order to survive and thrive.
For the financial health of the nation, we have to reform the health benefits–as well as pension plans—of state and local public employees. Beyond this, however, government must be radically downsized, reducing our exposure to the inevitable abuse and irresponsibility.
References:
1. Edwards, Chris, “Unfunded State Health Costs: Still $1.4 Trillion,” Cato@Liberty, Dec. 19, 2007, http://www.cato-at-liberty.org/unfunded-state-health-costs-still-14-trillion/.
2. Edwards, Chris, “Employee Compensation in State and Local Governments,” Tax & Budget Bulletin, Cato Institute, No. 59, Jan. 2010, http://www.cato.org/pubs/tbb/tbb-59.pdf.
3. Edwards, Chris and Gokhale, Jagadeesh, “Unfunded State and Local Health Costs: $1.4 Trillion,” Tax & Budget Bulletin, Cato Institute, Number 40, Oct. 2006, http://www.cato.org/pubs/tbb/tbb_0925-40.pdf.
4. McMahon, E.J., “A $205 billion bomb,” New York Post, Oct. 10, 2010, http://nypost.com/2010/10/14/a-205-billion-bomb/.
