Compared to most states, New York has done a good job setting aside money for public employee pensions. But for retiree health benefits, it's unfortunately just pay as you go.
That will leave taxpayers in the years ahead with a large and growing tab, an issue highlighted in a new report from the nonprofit Pew Center on the States. Pew found that the 50 states had a combined unfunded liability for retiree health care -- the gap between what's been promised and what's been salted away to pay for those promises -- of $627 billion.
In New York, taxpayers are on the hook for an estimated $57 billion just for state retirees. But the picture is even scarier: a study by the nonprofit Empire Center for New York State Policy looked at public employees at every level of government and came up with a retiree health care figure of $205 billion.
New York is a big state, but these are still big numbers. The burden is especially large on Long Island. Among New York counties outside the five boroughs, Empire found that Nassau and Suffolk owe the most, at a combined $7.6 billion, and also led the list per capita. Local taxpayers must bear the additional burden of health benefits for retirees of their town or city, their school district and other layers of government, including the state. This burden is only going to grow, given health care inflation and rising life expectancy.
New York's Comptroller, Thomas DiNapoli, has rightly urged public officials to get on top of this issue, and in the past has proposed to let state and local governments set up trusts, much like a pension fund, to cover these costs. Money saved for later benefits can generate investment returns that, over time, will cover a lot of expenses.
Meanwhile, the growing retiree health burden means that New York's roughly 3,200 government employers will have to get a lot less generous in negotiating retiree health benefits with their unions. Most retired civil servants enjoy vastly better health benefits than private sector workers, and many pay little or nothing toward their premiums.
But the growing bill for retiree health benefits is also further evidence that the lack of a coherent universal health insurance system, with effective cost controls built in, is a huge burden for every American, even those lucky enough to have affordable medical coverage for themselves. Already, governments at all levels -- that means taxpayers -- pay about half the nation's $2.8-trillion annual medical bill. That's so even though 46 million Americans still lack any coverage at all.
While the rate of growth in health spending has slowed during the economic doldrums of recent years, at 4 percent a year it still far outpaces inflation, and we still outspend every country in the world as a proportion of gross domestic product. The growth in these costs has been gobbling up wage increases for years.
As the U.S. Supreme Court wrestles with the constitutionality of the federal Affordable Care Act, better known as Obamacare, it's worth bearing all this in mind. Until we rein in the growth of medical spending -- for public employees and everyone else -- we'll never raise middle-class incomes, or restore our nation's fiscal health.