Retiree Health Care Issue 'Goes Nowhere' in Nebraska

Nebraska's state government is one-of-a-kind. Its Legislature has only one chamber — a Senate — and senators don't use party labels.

The state now has another distinction: It is the only state that doesn't subsidize the medical care of retired government employees.

MEDICAL BENEFITS: Benefits neglected for civil retirees

"We bring up the issue of retiree medical care, and it goes nowhere," says Mike Marvin, executive director of the Nebraska Association of Public Employees, a union. "Heck, we can't even get decent wages."

Nebraska is the only state in the country that owes nothing for the medical care of retired government workers. The other 49 states have an unfunded obligation of $445 billion, according to a USA TODAY survey.

New accounting rules require that states and local governments report how much they owe for medical benefits promised to workers after they retire. This previously unreported obligation is the third leg of a stool — along with debt and pension liability — that accountants use to compute the financial health of a government.

Some state governments take financial responsibility for the medical insurance of retired teachers and local police officers. Elsewhere, school districts and cities pay the bill. So the same $25 billion liability can fall on a state legislature or be sprinkled around hundreds of towns, school districts, water authorities and other agencies.

The USA has 89,437 branches of local government, according to the Census Bureau. A USA TODAY survey of 25 midsized to large governments found a retiree medical obligation of $126 billion. Similar places vary:

•Big: New York City has a $60 billion obligation, more than its $43 billion in debt.

• Small: The city of Los Angeles has a tab of $544 million.

•Big: The University of Texas and the Texas A&M systems have a combined $7 billion obligation.

•Small: The University of Colorado and Colorado State have a $274 million tab.

A few state and local governments have started to set aside money to prepare for paying retiree medical costs. Others have been cautious because of the expense and legal issues. The value of these benefits varies enormously between governments. Some pay nearly all the cost. Others contribute a fixed amount, such as $200 a month or 50% of the health insurance premium.

Even seemingly modest benefits can be costly because police officers, teachers and other civil servants often retire many years before qualifying for Medicare at 65.

"People are going to ask, 'Why does this place have higher taxes?' or 'Why does this place have high water rates?' " says Kenneth Rust, president of the Government Finance Officers Association. The reason will be retiree medical costs, he says.

Florida requires local governments to let retirees buy the same medical insurance provided to current workers. This can cost governments more than $5,000 annually per retiree, even when retirees pay 100% of the premium, because retirees use more medical care, driving up costs.

Actuary Becky Sielman of Milliman Inc., a benefits consultant, says the obligation among 35 governments her firm works with in New England ranges from $3,000 to $95,000 per worker and retiree. That amount reflects the money needed today, set aside and earning money, like a pension fund, to produce enough income to cover medical benefits after workers retire.

A few governments have resisted reporting their numbers. "There's no legal requirement in Texas to pay these health benefits. For that reason, it's misleading to report them as a liability," says Suzy Whittenton, state director of fiscal management.

University of Texas accounting professor Michael Granof disagrees: "The liability exists, whether you report it or not. The new surgeon general can't solve illness in America by recalibrating the thermometer," he says.

Although Texas doesn't report the number in its financial report, it has calculated the total obligation, including its universities: $48.7 billion, second biggest among states.

By contrast, Nebraska reports no liability. "Nebraska is a fiscally conservative, pay-as-you-go state, and that's the biggest reason we don't have this benefit," says state Sen. Dave Pankonin, chairman of the Legislature's retirement systems committee.

"Private sector employees rarely have this benefit," says Pankonin, a farm equipment dealer. "The era of early retirement before Social Security age and Medicare is becoming unrealistic."

Nebraska shuns all long-term financial commitments, not just for retirement benefits. The state has no debt. Its Constitution forbids it.

One thing Nebraska does have: A balanced $3.5 billion budget and a $563 million cash reserve.