Prairie State Wire

 
Name a few of the State of Illinois’ biggest debts. Most of you probably would put bonds on top. And you’d certainly have pensions on the list if you’ve been following our pension crisis. Pensions are actually the biggest.

But I doubt many Illinoisans know about the second biggest elephant in the room. That’s future healthcare costs for retired state workers. Aside from pensions, retired state employees get healthcare benefits.

Generally speaking, the state covers healthcare between the date of retirement and the date of Medicare eligibility, as well as supplemental benefits after Medicare kicks in. Premiums are free to workers who put in at least 20 years.

But with the wave of a wand, Illinois just erased over $25 billion of that healthcare debt. Illinoisans should be suspicious. We are talking real money here. That $25 billion, to put it in perspective, is nearly half the size of the state’s total budget.

The state’s total future healthcare costs, earned for work already performed, are estimated at $57 billion, according to the state’s most recent audited financial statements. That’s far higher than the total of all the state’s bonds, which is only about $29 billion. Pensions are indeed the biggest state debt. About $140 billion of expected payments are owed for work already performed for which the state has no money invested or set aside.

For future retiree healthcare costs, it’s a “pay-as-you-go” system. Nothing is invested or set aside to cover benefits already earned. The state has to guestimate what healthcare costs will be in the future. All kinds of other things have to be assumed when making that guestimate, such as how long people will live and how often they will need healthcare. If they get it wrong, taxpayers have to cover the difference.

Now the suspicious part: Last month the state’s actuaries released new numbers that lopped over $25 billion off the healthcare debt. Poof, 43% of the healthcare debt magically disappeared.

How could they do that? They made new assumptions. Healthcare claims have been coming in much lower, they say. Premiums for the drug plan retirees got pushed out five years thanks to a new contract. And interest rates jumped, which, by the logic accountants use, means future debts should be discounted more steeply.

Was that all accounting shenanigans to make the state’s finances look better or was there an honest basis for those changes?

You can’t tell, and that’s the real problem here. Only a healthcare actuary who dug in with all the numbers could answer that.

Some of the change may indeed be justified. At Wirepoints, we spend huge amounts of time understanding pensions and government finances. But government healthcare liabilities are a black box – the murkiest of all government reporting. There’s no way for us to check what only an actuary can know. Maybe we will luck out and some independent actuary will write somewhere with a fair analysis, but so far, there’s nothing from anybody.

If that leaves you frustrated and confused, good. That’s the point. We have a retirement system for government workers in Illinois that is hopelessly obscure and subject to manipulation. Pensions and healthcare costs are Illinois’ two biggest liabilities, but voters are at the mercy of politicians and their hired actuaries and accountants.

That system must be completely overhauled. Retiree benefits for government workers should be changed to look more like we have in the private sector. That includes a portable, individually controlled retirement plan and retirement dates consistent with Medicare.

Mark Glennon is founder of Wirepoints, an independent research and news nonprofit organization.