Connecticut’s Costly and Misleading Retiree Health Benefits

Connecticut’s public sector costs have long been out of control, but a new study by the Nutmeg Research Initiative, authored by economist Andrew Biggs, PhD, reveals just how disastrous the state’s retiree health benefits — known as Other Post-Employment Benefits (OPEB) — have become. 

The study paints a grim picture: In an apples-to-apples comparison, Connecticut ranks second in the nation for the most generous retiree health benefits, trailing only California. It far outpaces nearly every other state not just in cost, but also in its lack of transparency in accounting methods. 

However, while many states keep retiree health costs in check, Connecticut’s system shifts this ever-growing burden onto taxpayers, driving up costs and squeezing the state budget.  

To ensure a fair comparison, the study analyzed how much each state pays for retiree health benefits earned by active employees, known as the “service cost.” Since states use different accounting methods, the data was adjusted to put all 50 states on an equal footing. This apples-to-apples approach eliminates differences in reporting and gives a true picture of how generous each state’s benefits really are.

Using data reported by states under their specific accounting practices, Connecticut’s OPEB service cost for Fiscal Year (FY) 2024 shows that state employees accrue future retiree health benefits equal to 12.8% of their annual wages — slightly below Ohio (16.2%), California (16.0%), and Illinois (15.3%). 

On average, Connecticut pays its state employees $12,407 annually in retiree health benefits, far exceeding what employees in other Northeastern states receive. Maine, the next highest in the region, provides $9,498 per employee. 

Meanwhile, in Massachusetts, retiree health benefits amount to just $8,709. Even deep-blue New York, another high-cost state, offers $8,713 annually, while New Jersey’s benefits are at $7,502 and Rhode Island is at $1,297— 89.6% less generous than Connecticut’s.  

However, Connecticut could learn a thing or two from states like South Dakota who take a far more reasonable and responsible approach, where employees are simply given the option to buy into COBRA.  South Dakota ranks last in OPEB service costs because retiree health benefits are terminated a month after their employment ends. 

Creative Accounting to Hide the Real Cost 

As if these lavish benefits weren’t bad enough, the study exposes Connecticut’s shady accounting tricks to hide the true cost of its long-term financial obligations.  

Unlike most states, which follow Government Accounting Standards Board (GASB) recommendations, Connecticut has adopted a different approach that artificially lowers its reported liabilities.  

GASB sets the rules for how state and local governments track and report their finances. It’s basically the watchdog for government accounting, making sure officials don’t play games with the numbers. Without these standards, politicians can bury debt, hide liabilities, or make their budgets look better than they really are.  

In effect, GASB forces governments to lay out their financials in a way that keeps them honest and lets taxpayers see the real cost of government spending.  

Here’s how it works: GASB 75 — the rule that governs how states report retiree health obligations — requires states to use two different discount rates when calculating future costs. A higher rate is applied to any money already set aside to fund benefits, while a lower, more conservative rate is used for the unfunded portion.  

Most states follow an “assets first” approach — using whatever money is available to pay off near-term obligations first. But Connecticut changed their accounting methods in fiscal year 2024 and started doing the opposite. Instead of using its assets for upcoming costs, the state pushes those funds to the farthest future payments, which lets it apply a higher discount rate (6.9% rate of return) to those distant obligations, artificially making its debt look smaller than it really is. 

Meanwhile, Connecticut applies a lower discount rate (3.65% rate of return) to the near-term obligations — where it has less impact on the total reported liability. This makes Connecticut’s long-term debt look smaller than it really is, without actually reducing what it owes.  

It is unclear why Connecticut opted to change the way it calculates its retiree health care costs and liabilities. 

At its peak in FY 2021, the state’s OPEB liability hit $23.5 billion. But then between FY 2022 and FY 2024, Connecticut’s net OPEB liability fell to $15.6 billion, a $7.9 billion reduction — more than a one-third decline. 

On paper, it looks like Connecticut has made major progress in managing retiree healthcare costs. But in reality, this improvement has little to do with actual cost reductions. Instead, the drop is largely the result of the accounting changes Connecticut adopted in 2024. 

And that’s not all. GASB 75 also says that states should disclose a “blended” discount rate, which combines the two rates to reflect the real cost of retiree health benefits. But Connecticut doesn’t publish this number, making it impossible to fairly compare its financials to other states — and conveniently hiding from taxpayers how big the problem really is. 

According to Dr. Biggs. “Connecticut’s actuarial firm, Segal, did not disclose a ‘blended’ rate” and points out that he is “not aware of any other state that fails to disclose the average discount rate applied across all plan liabilities.”  

Even After Adjustments, Connecticut Leads in Cost 

However, even when adjusting for accounting differences, Connecticut remains in a league of its own.  

After normalizing discount rates across states, the report shows Connecticut’s annual benefit accruals still makes them the most expensive in the Northeast showing the true cost to be $26,846. This means, no matter how you slice the data, Connecticut is at the top of the list in the Northeast in terms of retiree perks — and taxpayer burden. The Northeast as a whole provides the most lucrative benefits in the nation, but Connecticut still leads the pack. 

Dr. Biggs notes that, “while Connecticut’s accounting strategy may not be in outright violation of GASB 75, the strategy provides a misleadingly optimistic view of the state government’s long-term finances. 

How Connecticut’s Accounting Gimmicks Protect Public-Sector Unions 

Connecticut’s public-sector unions have a lot riding on the state’s deceptive accounting tactics. By manipulating how retiree healthcare liabilities are reported, the state makes these expensive benefits look more affordable than they actually are. That’s great for unions, but bad for taxpayers, who are ultimately picking up the tab. 

This accounting move makes it seem like retiree benefits are getting under control, when in reality, the costs are just being pushed down the road. That delay works in the unions’ favor. With liabilities appearing smaller, there is less pressure to rein in costs — meaning unions can continue negotiating generous benefits without public outrage. 

This lack of transparency also helps politicians who are aligned with unions. If the true cost of these benefits were front and center, there would be calls for reform — like increasing employee contributions or scaling back benefits for new hires. But because Connecticut doesn’t show the full picture, lawmakers can downplay the issue and avoid making tough choices. That means union members keep their perks while taxpayers are kept in the dark. 

Once these benefits are locked in, they’re extremely difficult to reverse. Unlike private-sector benefits, which can be adjusted when costs get too high, public-sector union contracts make cutting retiree benefits impossible. Even when the state faces budget shortfalls, these obligations remain untouched, forcing cuts elsewhere or leading to tax hikes to cover the gap. In the end, the unions win, and taxpayers pay the price. 

Ultimately, state employees must contribute more toward their retiree healthcare costs.  Connecticut’s system currently places too much of the financial burden on taxpayers. Increasing employee contributions and eliminating guaranteed lifetime health coverage for future hires would bring the system closer in line with private-sector standards. 

Finally, Connecticut must increase transparency in how OPEB liabilities are accounted for, requiring independent financial stress tests, and mandating taxpayer impact reviews for all new collective bargaining agreements.  

Without meaningful reforms, Connecticut will keep kicking the can down the road — until taxpayers are left with a bill they can no longer afford.