New York State Retiree Health Costs Rise 29% to $72 Billion

New York state owes $72.2 billion for promised health benefits for retired government workers, a 29 percent increase from the year before, according to a financial statement.

Future retiree benefit costs rose by $16.3 billion in the fiscal year ended March 31, exceeding the state’s outstanding debt by more than $15 billion, according to the statement published last week. New York City’s retiree health-care liability was $84 billion for the fiscal year ended June 30.

“The broader question is health-care costs generally,”said Stephen Madarasz, a spokesman for the Civil Service Employees Association, New York’s biggest public-worker union.“That’s a source of concern for people around the country.”

Most states cover retiree health benefits on a pay-as-you go basis. They don’t set aside money annually to pre-fund the obligations, as they do with pensions. Last year, New York, the third-biggest U.S. state by population, spent $3.3 billion on health care for active and retired employees as health-care spending rose 6 percent.

Trust Fund

In 2008, Comptroller Thomas DiNapoli proposed creating trust funds to help the state and local governments plan for the cost of health-care coverage for retirees. Legislation creating the trusts passed the Senate in 2010. It didn’t pass the Assembly.

“This is an expense we need to plan for more effectively than we have in the past,” DiNapoli said in an e-mailed statement. “There are no easy answers, but a first step is establishing a trust account to pre-fund these obligations.”

Governor Andrew Cuomo and the CSEA agreed to a five-year labor contract last year that increased employees’ health-care contributions.

For workers classified as a salary grade 10 or above, the state will pay 69 percent of family coverage compared with 75 percent under the old plan. For Grade 9 employees and below, the New York pays 73 percent compared with 75 percent. The change will save taxpayers $764 million over five years.

A group representing 40,000 retirees sued after the Cuomo administration applied the contract changes to existing retirees, saying the move violates civil-service law and the state and U.S. constitutions.

Retiree health-care liabilities amount to $240 billion for New York state, New York City, local governments and public authorities, according to E.J. McMahon, a senior fellow at the Manhattan Institute for Policy Research in New York, which supports lower taxes and less government spending.

Some upstate cities such as Syracuse and Rochester, which have been losing population over the last 30 years, spend more on retiree health benefits than they do on current employees, McMahon said.

“This is a rope around your neck,” he said. “Retiree benefits are very rare in the private sector and you’re talking about a class of people who retire early.”

To contact the reporters on this story: Martin Z. Braun in New York at ombraun6@bloomberg.net

To contact the editor responsible for this story Stephen Merelman at smerelman@bloomberg.net