State health benefits tab swells to $78B Coverage promised for retired workers, teachers estimated to cost $8,500 per Jerseyan Wednesday, February 07, 2007 • BY DUNSTAN McNICHOL • Star-Ledger Staff The long-term price tag for post-retirement health insurance the state has promised thousands of working and retired teachers and public employees is $78 billion -- nearly four times what experts estimated as recently as last year, a new report projects. The new calculation, which works out to an average of almost $8,500 for every state resident, opens a new crack in New Jersey's financial foundation just as Gov. Jon Corzine is preparing to present a state budget and negotiate benefits and contracts with state employees. "It's a significant amount," said Richard Marino, director of Standard & Poor's, a credit rating service that monitors New Jersey's fis cal health. "Certainly we'll have to have conversations with the state about that, as to how they plan on funding something that large." The $78 billion represents the total expected cost of retirement health benefits not yet funded by the state for the package of health benefits promised to 325,000 teachers and 150,000 state employees and their families. A task force created by former Gov. Richard Codey pegged this "unfunded liability" at about $20 billion last year. The state recently tallied the long-term cost to prepare for a new Government Accounting Standard Boards rule that will require governments to list the health benefits tab as part of their routine disclo sures of long-term debt. State officials who have reviewed the first actuarial tally told The Star-Ledger the size of the projected bill this week. This year's state budget included $1.2 billion to cover retiree health insurance payments as they come due. That amount is scheduled to be about $1.5 billion in the upcoming state budget. The full size of the debt far exceeds even the gloomiest estimates presented to lawmakers during re cent budget discussions. The state officials who reviewed the report say the consultants project the state would have to make payments of about $7.8 billion each year to start reducing the outstanding benefits debt. That would amount to dedicating about one- fourth of the entire state budget to the retiree health benefits program. "We have to get a sense of what New Jersey is going to do about these obligations," said Ted Hampton, an analyst at Moody's Investors Services. State Treasury officials declined to comment on the consultant's projections yesterday. Reasons for the soaring cost include the rising price of health insurance, and a hike in the number of state employees and teachers retiring and qualifying for the benefits. But a change in state policy, designed to free up funds for tax breaks and other state expenditures in 1994, exacerbated the problem. Until that change, state officials were bankrolling funds to cover future health benefit costs. But in 1994, then-Gov. Christie Whitman discontinued the advance funding, and spent the $400 million that had been socked away to that point. Without a pot of money for the future, the annual state budget cost to cover retiree benefits has soared. It is now more than six times higher than the $200 million the state paid just seven years ago, and is projected to hit $2.1 billion by 2010, projections provided to lawmakers show. The health benefits cost is on top of what the state must contribute to pay off a deficit in the pension system for state and local employees and teachers. Addressing that deficit, which totaled $18 billion last year, already costs taxpayers about $2 billion a year. Dunstan McNichol may be reached at (609) 989-0341 or dmcnichol@starledger.com. © 2006 The Star-Ledger. Used by NJ.com with permission.