Some States Have Stopped Paying Retiree Health Benefits
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What is the main topic discussed in this episode?
Here's your Money Briefing. I'm J.R. Whalen at The Wall Street Journal in New York. Some states have found a way to cope with the skyrocketing cost of paying out retiree benefits. They've stopped paying them. We'll have details in a moment. First, these money and market stories you should know. The labor market keeps chugging along. The ADP payroll company reports the U.S. private sector added 275,000 jobs in April, and that's significantly higher than economists were expecting. 145,000 of those jobs were at companies classified as medium-sized, that is, between 50 and 500 employees.
What problem are states facing with retiree health benefits and how big is the gap?
The service sector has contributed most of the new private sector jobs for the past few months. Employees hired in health and education and the professional and business services continue to add to gains in that sector. And the group Feeding America says in 97% of counties in the U.S., there are people who cannot afford or do not have access to healthy food. The report says about 12.5 million children in the U.S. are in that category, and 750,000 of them live in New York City and Los Angeles. But from a county standpoint, in Jefferson County, Mississippi, about 35% of people are what the report calls food insecure. That's the highest in the nation, while Steele County, North Dakota has the lowest at 3%.
Nationwide, the average cost of a meal in the U.S. in 2017 was $3.02, and that was down slightly from the year earlier.
In the U.S., the cost of health care benefits to retirees is rising like many other financial commitments, and many states are taking a drastic and unexpected action. They've stopped paying. Wall Street Journal reporter Heather Gillers is on the line with us to discuss. So, Heather, I want to ask you about a few states in particular, but what kinds of numbers nationally are we talking about?
The gap that is the amount that states as a group are falling short of what they've promised to pay is about $600 billion. So it's quite a lot of money.
Wow. That is a lot.
Why did states promise retiree health care without funding it like pensions?
Wow.
States made these promises largely in the second half of the 20th century when government was growing and budgets were a little more robust. And they didn't really put aside much money to pay for them. Instead, they generally just paid for retirees health care benefits out of their annual budgets. What they may not have seen is the tremendous growth in the cost of medical care that we've seen over the past 10, 20, 30, 40 years. They also haven't benefited much from investment returns because Unlike pension funds, this money hasn't been saved up in a trust account. Instead, it's sort of built into the annual budget year after year. And as a result, these expenses can become quite burdensome.
So they're dealing with people living longer because of the progress of medicine and the cost of medicine on top of that. And then the recession in 2008, 2009, that seemed to knock a lot of states really down a couple of rungs on the ladder as well.
It certainly did. And we haven't seen the bounce back with governments that we've seen in other areas. So largely governments still local governments and state governments still employ roughly the same amount of people that they did 10 years ago. While they're seeing some revenues pick up, there really hasn't been as much of a recovery in the public sector as there has been elsewhere. And so you see states and cities looking to places where they can cut. And unlike pension liabilities, which are protected in many states by very strong court decisions, healthcare for retirees is not generally seen by courts as the same kind of right, as the same strongly protected, entitled benefit.
You shed a lot of light on North Carolina, and I want to ask you about those numbers, but you have a good quote in your story from North Carolina's treasurer, and he said about the issue, he said, it's not emotional, it's not political, it's just simply mathematical.
As states are looking ahead and thinking about what they can afford to pay for and how much they're willing to raise revenues, you know, income taxes, fees, sales taxes, they are oftentimes seeing a mismatch between the revenues that they are willing to or feel capable of collecting and the expenses that they want to pay.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:05–0:42
2
What problem are states facing with retiree health benefits and how big is the gap?
0:42–2:20
3
Why did states promise retiree health care without funding it like pensions?
2:20–5:40
4
How have rising medical costs, longevity, and the 2008 recession worsened states' liabilities?
5:40–9:13
5
Why are retiree health benefits treated differently from pensions in court and budgeting?
9:13–10:02
Speakers
2 identifiedMore from WSJ Your Money Briefing
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