Critical Condition

From Health ‘Reform’ to Government-Retiree Bailout

The behind-closed-doors squabble over the so-called “Cadillac” tax on high-cost health benefits is that it’s really about bailing out public-sector-retiree health benefits, especially at the state and local level. Today’s New York Times reports that the tax won’t hit these folks until 2018. If I were a betting man, I’d guess that that date will be pushed out even farther before this deal sees the light of day.

The tax is now going to hit plans that cost $8,900 for an individual and $24,000 for a family, which is way higher than the current cost of employer-based health benefits.

Until recently, state and local government employers did not have to report retiree health obligations on their balance sheets like private employers do. Of course, this meant that weak local authorities negotiating with strong union leaders resulted in unfunded liabilities that are unexpected and out of control. A recent study estimated such liabilities to be $558 billion nationwide, although the extent of the crisis varies a lot between states. There are no prizes for guessing that New York, New Jersey, and California fare the worst.

The Congressional Budget Office has yet to score this partial bailout of public-sector retiree benefits, but it will certainly send the (already debunked) pledge of deficit neutrality into the dustbin of history. Unless, of course, they figure out yet another tax to patch the hole in the CBO’s score.

John R. Graham is director of Health Care Studies at the Pacific Research Institute.

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