Md. retiree health costs spiraling — quietly

State's burden for future costs may be country's heaviest

December 11, 2009|By Jay Hancock

No wonder Gov. Martin O'Malley and the legislature are ignoring the $16.3 billion in liabilities Maryland has racked up to finance generous health plans for retired state employees.

By one measure, Maryland's burden for future retiree medical costs is the heaviest of any state in the country. A new report shows that the program's unfunded expense grew by $1.3 billion just in the past two years.

Acknowledging the bill would require doing something. We certainly can't have that.

The latest task force to address retiree medical costs is about to blow another deadline. The Blue Ribbon Commission to Study Retiree Health-Care Funding Options was supposed to deliver recommendations a year ago. Then it was postponed to the end of 2009.

"We haven't met in just about a year, so that's not going to happen," Sen. Edward J. Kasemeyer, a suburban Baltimore Democrat and co-chairman of the commission, said this week. "We're just going to ask for an extension."

Nobody wants to say exactly why the pols are extending the extended extension. But you don't have to be a Democratic precinct boss to figure it out.

Fixing the problem requires tough choices that nobody wants to make in a recession with tax revenue plunging and an election coming up.

Policymakers will have to cut benefits, which will anger unions. And they'll have to divert resources from other programs to start financing these liabilities the way bond-rating agencies desire.

It's another facet of the health care crisis. Medical costs for retired public workers have been ballooning, putting states on the hook for billions in future spending as the number of retirees grows along with medical inflation.

Accounting authorities have forced states to start listing these liabilities on their balance sheets. Next you'll see lenders demanding that states put money aside for retiree health care as they do now for future pension expenses.

"It's out there. It's a liability. It should eventually be addressed," says Richard Marino, who rates Maryland's bonds for Standard & Poor's.

Maryland's retiree medical benefits are better than for active workers at many workplaces. It takes 16 years of service to fully qualify. A retiree and spouse pay premiums of $156 a month for the most generous option, a small fraction of the total cost.

Much of the plan's soaring expense comes from early retirees who aren't eligible yet for Medicare, says Cecilia Januszkiewicz, who was budget secretary under Republican Gov. Robert L. Ehrlich Jr. Fully funding the liabilities would require annual appropriations of $600 million a year, she says - about what the state expects in slot-machine revenue.

As a portion of Maryland's payroll, that's higher than the cost for any other state, calculated Robert L. Clark, an economist at North Carolina State University, in a report published last month.

Maryland isn't the only state facing big retiree health costs, notes O'Malley spokesman Rick Abbruzzese. Yeah, but the procrastination has lasted long enough.

Before the Blue Ribbon commission, there was another retiree health commission, whose big recommendation was to appoint this commission. Before that there was The Task Force to Study the State's Retiree Health Insurance Liabilities. It never met. Before that, remembers legislative analyst Warren Deschenaux, there was Sen. Bobby Neall, warning about the problem in the 1990s. Few listened.

This is a huge problem that costs future taxpayers hundreds of millions more with each busted deadline. Nobody's winning profiles-in-courage awards for dealing with it.

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