Illinois’ Other Debt Disaster: $73 Billion in Unfunded State Retiree Health Insurance Benefits
The comments below are an edited and abridged synopsis of an article by Ted Dabrowski & John Klingner
Pensions get all the attention when it comes to Illinois’ collapsing finances. But there’s another government-worker benefit also wreaking fiscal havoc—free and heavily subsidized retiree health insurance for state workers.
Illinois has promised $166 billion in retiree health insurance benefits to public-sector workers over the next 38 years. The state should have $73 billion invested today so it can make those future payments. But it hasn’t set aside anything atall.
That $73-billion hole is a financial time-bomb, one that’s been ignored thus far by Illinois’ lawmakers, civic leaders
Illinois courts have ruled that public employee health obligations, like pension benefits, cannot be impaired. Unlike pensions, however, nothing is set aside and invested to cover that future expense. The liability is entirely unfunded. The state simply pays retiree healthcare costs as they are incurred. Growing future costs are left to future budgets.
Expect those annual payments for retiree health benefits to further squeeze Illinois’ budgets as the bills come due. Payments by the state (taxpayers) will rise from $1 billion today to nearly $6 billion in the future to meet the state’s yearly retiree health insurance obligations.
Officially, retiree health and pension costs are already set to consume more than a quarter of the state budget over the next 30 years. But the state’s official numbers grossly underestimate Illinois’ true retirement costs. If the real cost of pensions and retiree health insurance were properly measured and paid for, they would consume 50% of the state’s annual budget.
Without massive reforms, retirement costs are going to damage Illinois beyond repair. The state has no choice but to dramatically reduce its unfunded obligations.
