State Retiree Health Care Liabilities: Multiple Factors Contribute to Improving Picture in Many States

May 6, 2016

States paid $18.4 billion in 2013 for worker retirement benefits other than pensions, which are known as other post-employment benefits (OPEB). Almost all of this total was spent on retiree health care.1 The payments covered the cost of current-year benefits and, in some states, included funding to address OPEB liabilities—the cost in today's dollars of benefits to be paid in future years. These liabilities for covered workers totaled $627 billion in 2013. 

On aggregate, states had enough assets set aside to fund 6 percent of these liabilities, although there are large variations in both funded status and liabilities. Setting funds aside for future benefits can both make costs more predictable for taxpayers and make benefits more secure for retirees. This may be particularly important for states with higher levels of benefits and liabilities. The aggregate OPEB liabilities reported by states nationwide declined by 10 percent between 2010 and 2013, adjusted for inflation. 

This brief provides an analysis by The Pew Charitable Trusts indicating that changes in state health plan provisions and funding policies, along with lower than expected health care inflation, drove this reduction in liabilities. It also includes an examination of state OPEB assets and liabilities. 

The research is part of a larger look at how states handle OPEB costs. State Retiree Health Spending: An Examination of Funding Trends and Plan Provisions, a joint report released by Pew's State Health Care Spending and Public Sector Retirement Systems projects, explores the issues more broadly. Future analyses will provide recommendations on pre-funding strategies, consider the current and projected costs of workers' benefits, and examine the goal of ensuring that the cost of benefits is sustainable over the long term.

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