Pa. says future state retiree health costs will be $8.5B

By MARTHA RAFFAELE

- Associated Press Writer

HARRISBURG, Pa. — Health care costs for retired state workers are now projected to be $8.5 billion in the long term, about 40 percent lower than originally estimated, Pennsylvania's budget chief said Friday.

The state was able to lower its estimate of the unfunded portion of retiree health care costs that have been accrued so far after implementing a number of recent cost-cutting measures, Budget Secretary Michael Masch said.

Those steps include requiring workers who retired after June 30, 2005, to pay part of their premiums and increasing co-payments for prescriptions and certain office visits for those who retired before July 1, 2004. Beginning July 1, the state will expand from 15 to 20 years the minimum length of time state employees must work before they can qualify for retirement health benefits.

The annual cost of the benefits provided to roughly 60,000 retirees is $550 million this year. It is expected to increase to more than $970 million over the next five years, Masch said.

"This is still a very expensive program," Masch said. "I don't think the commonwealth can say it is done trying to contain costs. How generous we can afford to be in terms of retiree health care is an important issue."

The state had initially estimated long-term cost of retiree health benefits at $13.8 billion, a figure mentioned in a 2006 document about a state bond offering.

Officials released the latest projections under new public accounting rules that require state and local governments to disclose annual estimates of any nonpension benefits they have promised to current and future retirees.

The state has been funding the benefits on a pay-as-you-go basis, but it is also starting to set aside money to pay for them. It plans by the end of the current fiscal year to invest about $288 million in reserve funds in a special state treasury account and use the investment earnings to reduce its current payments, Masch said.

Nelson McCormick, president of the 18,000-member Pennsylvania Association of Retired State Employees, had no immediate comment on Masch's announcement Friday.