Commonwealth faces $13.3b healthcare bill for retirees
Panel says state needs 20-year savings plan
The state must come up with about $200 million a year for the next 20 years to pay off an estimated $13.3 billion in looming healthcare costs for its retirees, according to a stark new report by a Beacon Hill commission.
If the state acts now, and begins socking away the money every year, it could reduce those costs to $7.5 billion, the report says. The report was vague about how the state could come up with the money, and lawmakers are already struggling to fund repairs to crumbling roads and bridges, pay for the rising cost of the state's new healthcare law, and provide property tax relief to cities and towns.
Legislators warned that they may not be able to find money for retirees' healthcare unless they slash other programs or cut benefits for future retirees - options that are sure to meet stiff resistance from the powerful retirees' lobby.
"It's going to make the prioritization and choices even more difficult as we go forward, about what to keep and what to cut," said state Senator Steven C. Panagiotakos, the Senate budget chief, who served on the commission.
Lawmakers currently set aside about $275 million annually to pay for healthcare for the state's 50,000 retirees, Panagiotakos said. State workers who retired before 1994 pay 10 percent of their health insurance costs; those who retired after 1994 pay 15 percent. But the system, which the Legislature devised, leaves an estimated $13.3 billion in unfunded health costs over the next three decades.
The seven-member commission - which included four lawmakers, the state treasurer, Governor Deval Patrick's budget chief, and the chief of the state pension fund - started grappling with the problem last year. The panel released its findings yesterday and recommended immediately adopting a plan to ramp up payments for retiree healthcare by about $70 million next year and more than $1.6 billion in 2026.
The members suggested that the state begin taking money from the state's landmark 1998 settlement with tobacco companies, siphoning off $70 million next year and increasing that amount to $263 million over five years. But budget specialists warned that the tobacco funds are already being used to pay for other healthcare costs so that might not be a viable solution.
The report also says that when the state pays off its pension costs in about 2026, lawmakers should shift nearly $1 billion that was being spent on pensions to pay for retiree healthcare.
The commission also recommended that the state dedicate 50 percent of any future surplus to retiree healthcare, even though specialists cautioned that surpluses are unlikely to materialize in the next few years because the economy is weak.
"All the recommendations really come down to same thing, which is to say the state needs to find money as part of its regular budget to begin to pay off this obligation, to the tune of several hundred million dollars a year," said Michael J. Widmer, president of the Massachusetts Taxpayers Foundation, a business-backed budget research group. "It sets the broad parameters, but it doesn't really provide an answer, and all the hard work remains - namely what are we going to cut to fit this into the state budget, because there's no new revenue source."
Representative Jay R. Kaufman, a Lexington Democrat who cochaired the commission, said the report had at least "tackled the challenge of beginning to address how we are going to provide for public sector retirees."
"But as the report makes clear, it will take discipline, political will, and a lot of money to do this right," Kaufman said in a statement. "We dare not fail because the price and consequences of inaction are huge."
Cahill echoed the sentiment.
"It can be done with less pain today, than if we put it off but, it's not easy," Cahill said. "There is that 800-pound gorilla out there, waiting to be fed - and the liability is not going to get smaller, because healthcare costs are going up."
Michael Levenson can be reached at mlevenson@globe.com.
