RAGGED THOTS

The city currently provides free health insurance to its retirees, their spouses and dependent children. The state is almost as generous, promising to pay, depending on the date of hire, 90 to 100 percent of the cost for individual retirees, and 82 to 86 percent for retiree families.

Those bills - $911 million this year for city retirees and $859 million for state retirees out of a total city and state budget of $156.6 billion - may seem affordable now. But the New York governments, like most other public agencies across the country, have been calculating the costs in a way that sharply understates their price tag over time.

Although governments will not have to come up with the cash immediately, failure to find a way to finance the yearly total will eventually hurt their ability to borrow money affordably.

When the numbers are added up under new accounting rules scheduled to go into effect at the end of 2006, New York City's annual expense for retiree health care is expected to at least quintuple, experts say, approaching and maybe surpassing $5 billion, for exactly the same benefits the retirees get today. The number will grow because the city must start including the value of all the benefits earned in a given year, even those that will not be paid until future years.

Some actuaries say the new yearly amount could be as high as $10 billion. The increases for the state could be equally startling. Most other states and cities also offer health benefits to retirees, and will also be affected by the accounting change.

The increases will vary from place to place, but New York is expected to be at the high end because it offers richer benefits than many other cities and has many police officers, firefighters and sanitation workers who can retire with full pension at age 50.

At the transit talks, pensions were pulled off the table in the end, and the final settlement is likely to reflect an increased health care payment by current workers, not retirees. But even though New York was pushed to a standstill over proposed changes in transit workers' pensions, virtually no one in government, outside of a tiny group of experts, is talking publicly about the far more daunting bill for citywide retiree health insurance.

....

The city has been offering free health care to its retirees for decades. In the private sector, companies that once offered health insurance for retirees began to stop doing so in the 1990's, for a number of reasons, including accounting rule changes like those now coming into effect for states and cities. Today, only 38 percent of companies with more than 200 workers offer retiree health insurance, according to the Citizens Budget Commission, a group that analyzes city and state finances.

An even smaller number of companies, 9 percent, pay any part of the premiums that can be used to buy optional supplements to Medicare for retirees over 65. New York City and the state both pay the full cost of Medicare supplements for their retirees.

"They've stuck with that, although the rest of the world has changed," said Charles M. Brecher, research director of the Citizens Budget Commission and a professor of public and health administration at New York University's Wagner School of Public Service.

While the private sector was curtailing retiree benefits, New York City and the state have been preserving and even expanding benefits in bargaining with their unions. Both sides focused mainly on the current cost of the benefits. No one was paying much attention to the deferred cost of the benefits that would come due once current workers retired. Meanwhile, health costs resumed rising at double-digit rates, and a large share of the public work force began to reach retirement age. Currently, the city administers a big health plan for its workers and retirees and contributes to dozens of smaller retiree health plans that are run by individual unions and supplement the city's coverage.

That obligation is why it was legitimate for the Metropolitan Transportation Authority to say that the billion-dollar surplus that it has on the books is somewhat illusory -- and why it decided to trade the pension issue on the bargaining table for the health-care issue. However, that barely touches upon the size of the problem. The city and the state are on the hook for billions in future health-care costs for retirees and, aside from increasing taxes, there is little hope that either government has any real plan for getting the problem under control.

Of course, this doesn't even touch upon the problem at the federal level. The Medicare prescription-drug bill hardly touches on that -- though proponents of the bill hold out hope that the Health Savings Account will alleviate the fiscal pressures on the program.

Ironically, in the same Times, Paul Krugman (available only to Times DeadTree and Select readers) dismisses the value of HSAs. He may be correct. However, consider his inevitable prescription:

[C]ost-sharing, like H.M.O.'s, is a detour from real health care reform. Eventually, we'll have to accept the fact that there's no magic in the private sector, and that health care -- including the decision about what treatment is provided -- is a public responsiblity.

Um, except, Mr. Krugman, when the bills inevitably come due -- as he will undoubtedly notice reading your own front page.

# posted by Robert A. George @ 9:00 PM