Tab is steep for retiree healthcare
Los Angeles County is on the hook for as much as $20.3 billion in retiree healthcare costs over the next 30 years, according to figures released Tuesday.
The county has no long-term plan to cover the looming medical costs of its retirees and current employees. Instead, it funds health benefits on a pay-as-you-go basis; this fiscal year retiree healthcare is expected to cost the county an estimated $348 million.
Under new accounting rules for local governments and school districts, the county must fully disclose the cost of retirement benefits for its 100,000 employees. About 59,000 retirees and their family members receive county-funded healthcare. The county’s liability ranges from $12 billion to about $20 billion depending on the calculation used.
Although the county pension system -- payments to retirees not related to healthcare -- is about 90% funded, no money is set aside solely for medical expenses, said Gregg Rademacher, chief executive of the county employee retirement association.
Generally, the county pays 40% of healthcare costs of retired employees who have worked 10 years or more, with an additional 4% for each year that they worked. The county covers the entire healthcare tab for retirees who have worked at least 25 years.
The nearly $350 million annual cost is expected to balloon to an estimated $1 billion by 2016, according to a report prepared by an independent actuarial firm. In 20 years, retiree healthcare expenses are expected to grow from 1.8% of the county’s budget to about 5%, said county executive David Janssen.
The hefty numbers are “a serious wake-up call,” Janssen said. “We have to take action to mitigate the future cost of this program.”
County and union officials have been meeting about ways to cut retirement healthcare expenses for new employees, Janssen said, which is easier than slashing current employees’ benefits.
One solution: a healthcare trust fund that employees and the county contribute to, Janssen said.
Rademacher said that the problem isn’t unique to Los Angeles County.
“The numbers are large, but they’re only large because we’re covering a lot of people over a long period of time. It’s the same story that’s happening” with Medicare, “the same story that’s happening in communities across the nation.”
“We are committed to working closely with L.A. County to manage this estimated liability, and we are proud to be a part of the solution rather than the problem,” said the Coalition of County Unions, which represents about half of the county’s employees, in a statement.
