The state’s net liability for retiree health and dental benefits is now $95.51 billion, according to a report published today by State Controller Betty T. Yee. The liability represents the present-day cost to provide health and dental benefits to state retirees and their dependents earned as of June 30, 2021 – one of the state’s largest long-term liabilities. A year earlier, the state’s net liability for retiree health care, commonly known as Other Postemployment Benefits (OPEB), was $95.19 billion.
California’s net OPEB liability is relatively stable since the last valuation, increasing by just $0.32 billion. By contrast, the net liability increased by $3.26 billion from the end of FY 2018-19 to the end of FY 2019-20 and by $6.33 billion from the end of FY 2017-18 to the end of FY 2018-19.
A key factor that remains under close watch is inflation. Other key factors include utilization rates and technology. At the peak of COVID-19, members postponed certain high-cost procedures that were not emergent, and their numbers may go up in the near future. At the same time, increased implementation of telehealth holds the potential to reduce other costs. Liability gains of $8.11 billion for health care claims experience and design changes and $1.68 billion for pension-related assumption changes more than offset liability losses of $6.06 billion attributed to the discount rate change.
“I view this report with cautious optimism that our efforts have put California on the path to attaining our full-funding goals,” said Controller Yee, the state’s chief fiscal officer and board member of CalPERS and CalSTRS. “Certainly inflation remains a global concern, but to have minimal growth in year-to-year net liability is incredibly encouraging.”
In January 2010, California began entering into collective bargaining agreements to prefund retiree health care benefits. Prior to this, California covered retiree health care benefits strictly as costs came due. With all but California State University now contributing to the California Employer’s Retiree Benefit Trust (CERBT), analysts expect to see acceleration of the funded rate.
The state has set a policy goal of full funding by 2046. CERBT funds cannot be used to pay OPEB benefits until the state has fully funded the legacy liability, or 2046, whichever comes first.