A billion here

November 03, 2005

There was a time when the $1.3 billion price tag attached to Maryland's Thornton aid to education plan looked like a lot of money. But here's a number that makes Thornton look like so much spare change: $20.3 billion. That's what the state needs to pay for the future health benefits of retired state employees. It doesn't come due all at once, of course. But how much might taxpayers be expected to sock away each year to foot this bill? A consultant has suggested more than $1.9 billion.

But not so fast, it might not be as bad as all that. Exactly how much the state needs to set aside for retiree health care costs isn't entirely clear. And the current crisis stems more from a change in accounting standards than anything else. No law says Maryland has to set aside a dime. But failing to do so could prove costly, particularly if the state plans to keep its coveted triple-A bond rating.

So here are the facts. Maryland pays its retiree benefits on a pay-as-you-go basis. But new rules devised by the Government Accounting Standards Board cast retirement health benefits as a form of deferred compensation. Just like pensions, this means the employer would be expected to set aside money to cover this future obligation. Retiree benefits cost the state about $311 million annually. So it would seem prudent for the state to set aside at least that much beginning in fiscal 2008 (when the rules are expected to be fully implemented).

The General Assembly has created an investment account to handle this reserve. And the secretary of Maryland's Department of Budget and Management, Cecilia Januszkiewicz, is serving on a task force that is exploring the entire package of retiree benefits and liabilities beginning today.

How to pay for retiree health benefits is just part of the problem, however. Maryland's plan is fairly generous when compared to what's offered by other states and the federal government, particularly its prescription drug benefit. Is it too generous? Secretary Januszkiewicz and lawmakers will need to ponder that question. But they can't look at health care in isolation. The state's pension is comparatively stingy. If Maryland raises the co-pay for drugs, for instance, it could prove disastrous for elderly pensioners trying to make ends meet.

Health care costs are rising. And more than a few private employers have failed to meet retiree health care and pension obligations. State government jobs tend to offer modest pay - but with a promise of job security and future benefits. It's prudent to start setting aside money now for retiree health care. And while it's also wise to examine the composition of benefits, the interests of state retirees shouldn't be shortchanged.

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