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State retiree healthcare costs now exceed healthcare costs for current employees

Healthcare costs for retired state employees are projected to surpass the healthcare costs for current employees for the first time, according to the governor’s budget report.

Health costs for retired state employees are expected to grow from $645 million in 2016 to $731 million in 2017, eclipsing the costs for current state employees by $38 million.

The governor’s budget report, produced by the Office of Policy and Management, expects retiree health costs to grow to $864 million by 2019, more than $120 million over the costs of current employees that year.

 

The growth in retiree healthcare costs by $220 million over the next two years will put further strain on Connecticut’s finances and contribute to ongoing budget deficits.

Pension costs, retiree healthcare and debt service payments are the primary cause of the state budget deficits, according to the Office of Fiscal Analysis, and are growing faster than state tax revenue.

Combined these fixed costs make up 31 percent of the entire state budget.

The retiree healthcare trust fund is underfunded by $19 billion and according to a study by the Pew Foundation, Connecticut has saved less than 1 percent of the money need to fund its OPEB obligations.

Connecticut uses a pay-as-you-go system so as retiree healthcare costs grow the increases directly affect the state’s budget.

As part of the 2011 concession deal with Gov. Dannel Malloy, state employees pay 3 percent of their salary toward retiree benefits during their first 10 years of service.

This year the state will also contribute a 3 percent match into the retiree health care trust fund. But the savings in the fund will not curb the growing costs affecting the state in the next two years.

Connecticut’s retirees pay few co-pays and minimal premium costs for health coverage. For employees who retired after the 2011 concession deal, an individual only pays an annual deductible of $350. The most expensive co-pay is $35 for an emergency room visit and most services are 100 percent covered by the state.

For those who retired before 2011, the benefits are even more generous, with no annual deductible and a $15 maximum co-pay.

This has led to calls for reforming retiree health care plans and legislators have introduced bills that would require state employee retirement benefits to be set in state statute rather than through closed-door meetings with the governor.

Gov. Dannel Malloy is trying to secure $1.5 billion in union concessions over the next two years in order to close a budget deficit. Without any union concessions the state will have little recourse to modify retirement benefits until the labor contract expires in 2022.

On the other hand, many towns and cities in Connecticut have rolled back retiree health benefits due to growing costs.

Towns like South Windsor and Westport and cities like Danbury and Norwalk have either dramatically reformed their retiree health benefits or eliminated them altogether.

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