A handful of state governments are eliminating or reducing the health benefits they once offered to state workers.
The cuts come in response to growing medical costs, the aging of the American workforce, and new rules which force governments to be more transparent about how much they owe.
According to the latest report from the American Legislative Exchange Council (ALEC), nearly all states are unable to afford the retiree health benefits and pensions they promised employees.
The same report found that the average US pension is funded at about 35% of what it should be.
“Pension liabilities are really the existential financial threat facing state and local governments today,” says ALEC economist Jonathan Williams. “This is a huge crowding-out area for states, in that pension obligations will threaten future core government areas of spending such as healthcare, transportation, and education. And they also threaten future tax increases.”
Because the legal protections for pensions tend to be strong, officials in several states are taking aim at retiree benefits to cut down on debt. States like Texas, Michigan, and Connecticut have already pushed workers out of the system by increasing premiums, reducing benefits, and tightening eligibility requirements.
Kansas was more aggressive, announcing in 2017 its decision to charge retirees the full cost of healthcare coverage. The policy caused 75% of participants to drop out and pushed the state’s retiree healthcare liability down from $6.1 million to $508,000.
North Carolina, which struggles with a retiree healthcare liability of more than $28 billion, will stop offering retiree healthcare benefits to workers hired in 2021 and beyond.
—
While these cuts may be states’ only option to avoid bankruptcy, the changes are sure to make it harder for states to find employees.
“It’s going to make a difficult situation even more difficult,” says Charles Johnson, who works as a corrections official in North Carolina. The facility is currently looking to fill 100 positions.