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BENEFITS BIND : A SPECIAL REPORT

Public sector reels at retiree healthcare tab

June 10, 2007|Evan Halper | Times Staff Writer

MARY Alplanalp worked 19 years for the San Diego County welfare department, spurning higher-paying jobs to stay in a position where the most she ever made was $8 an hour. It was worth the low wage, she figured, because of a benefit package that promised she would never be destitute in old age.

Or so she thought.

At age 83 with a long list of debilitating ailments, no family and a monthly pension of just $1,000, Alplanalp says the only thing between her and homelessness is the lifetime health insurance she secured on the job to cover what Medicare does not.

Now county officials are threatening to take it away.

"If I don't have my medication, I will hallucinate," said Alplanalp, who suffers from mental health problems along with colon cancer and diabetes. "Where has compassion gone?"

Alplanalp's worries are shared by thousands of current and former public employees in California, as officials at every level of government confront the staggering cost of providing healthcare to their retirees. For years, public employers have promised workers lifetime benefits, but little money has been put aside to cover the bill. Now, new accounting rules have required government employers to calculate and disclose the potential liability.

The tab is enormous.

Some examples:

* Over the next three decades, the Los Angeles Unified School District will have to pay out hundreds of millions of dollars a year for retiree health benefits. It has yet to set funds aside to cover the bill. "These costs are just crushing," said district general counsel Kevin Reed.

* The state government is on the hook for payouts averaging well over a billion dollars a year -- and possibly billions more -- for retiree healthcare over the next three decades.

* Contra Costa County's retiree healthcare tab is on track to grow larger than the value of all its assets by 2012, according to a government report, which would make the county at that point "technically insolvent."

* In just four years ending in fiscal 2004-05, the cost of providing healthcare to the average Los Angeles County retiree doubled. By 2011, government retiree healthcare costs statewide are projected to be nearly triple those in 2004.

* A grand jury in Marin County, which surveyed dozens of public institutions for its March report "Retiree Health Care Costs: I Think I'm Gonna Be Sick" warned that some local governments may soon realize "it is impossible to meet their obligations. Bankruptcies or a 'death by a thousand cuts' in services are real possibilities."

The alarming costs stem partly from public employers' continuing to promise lifetime health benefits long after most private firms stopped doing so.

Government retirees, in many cases, receive excellent insurance, with no premiums, no big co-pays and few out-of-pocket expenses at all.

The state of California estimates that the price tag for providing such health benefits has reached more than $500,000 for a married retiree and spouse who live 20 years after retiring. Because many government employees retire before 60 and since life expectancies continue to grow, the cost could easily reach $1 million for some employees.

"A lot of these employers really did not know what they had committed to," said John Haslinger, an analyst at the Deloitte accounting firm who is helping several public employers find ways of dealing with their obligations.

The perk is typically a holdover from the days when insurance cost as little as $5 a month. Now it can be as much as $1,000.

"I can't tell you how surprised many of our clients have been," he said.

Taxpayers may be surprised too when asked to pick up the tab for benefits largely unheard of in the private sector. Analysts at Credit Suisse warn that the cost of continuing to provide these benefits could easily lift the tax rates of governments by 10%.

One alternative would involve cutting benefits for those already retired. Many recent retirees have large pensions -- a 30-year San Diego County employee whose salary is $80,000 upon retirement can collect a pension of as much as $70,000 a year -- plus generous healthcare benefits.

"Frankly, they are getting the cake and eating it too," said San Diego County Supervisor Dianne Jacob.

Her board recently voted to take the lifetime health benefits away from thousands of employees positioned to receive the biggest pension checks.

The county's retirement board, which is controlled by organized labor, has balked at acting on the proposed cuts. But county officials have warned that if they aren't made, the supervisors might invoke their authority under the county charter to cut off healthcare to all retirees.

Some government bodies don't have the option of booting retirees from their rolls -- regardless of how large their pensions are. Los Angeles County, which recently disclosed that over the next 30 years its tab will be as much as $20 billion, is bound by a state law that restricts it from cutting the benefits of any retiree.

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