Retiree health care is one of the fastest-growing line items in government budgets and, in response, some governments are scrapping their traditional health plans, Governing reports.
In just two years, according to a recent S&P Global Ratings report, unfunded retiree health-care liabilities across the 50 states increased by $100 billion and now stands at just under $700 billion.
So alarming is the problem that Dearborn, Michigan, recently made the risky move of borrowing money to help fill the gap. Instead, an increasingly popular option is scrapping government-sponsored health plans and instead paying for retirees that don’t yet qualify for Medicare to purchase a plan on a private health insurance exchange. The change is expected to save some cities hundreds of millions of dollars and make their annual retiree health-care costs more predictable.
The money helps cover a significant portion of the premiums for retirees who buy a plan on the exchange.
Police and fire unions were initially critical of the idea, calling instead for the government to reinstate the old retirement benefits.