A Fire Bell in the Night: Unfunded Liability and Local Government Retiree Health Care Benefits

Abstract

This paper reports on a survey on retiree health care benefits in the American local governments. With GASB 45 requiring reporting of their unfunded liabilities for other (non-pension) post employment benefits, local governments are now challenged with a dilemma of finding funds or reducing benefits. The survey examines perceived effects of health care benefits on human resources goals (recruitment, retention, and retirement), the current structure of local government retiree health care programs, and measures under consideration and/or adopted to deal with retiree health care costs. Survey results show that the local governments have adopted cost containment strategies and cost-sharing programs. With financial options limited, programmatic choices focus on termination, cost shedding, cost-sharing, and preventive and wellness. They have slowly begun to introduce preventive medicine and wellness efforts while continuing with further cost sharing. A few local governments have even begun to contemplate major cost shedding options (although very few are considering terminating benefits).