Most teachers receive health care benefits after they retire, costing states hundreds of billions of dollars. But 15 states have set aside nothing to pay for their obligations, a new analysis finds.
The national estimated liability for post-retirement health care benefits for teachers is $231 billion, according to a new study published in the journal Education Next. Thirty-five states offer post-employment health care to teachers.
“It’s easy to make a promise. It’s much harder to keep and hold the promise, and that’s what we’re running into now,” said author Chad Aldeman, who is a principal at Bellwether Education Partners.
Last year, 69 percent of public-school teachers worked in states or districts that offer retiree health benefits to workers under the age of 65, his analysis found. Almost as many—61 percent—worked for an employer that offers health benefits after the age of 65, when all Americans become eligible for Medicare.
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This is a generous benefit that most private-sector workers don’t receive. But it has caused a “precarious” situation, the analysis shows.
Fifteen states, including Florida, New Jersey, and New York, don’t have any money set aside to pay for their retiree health care obligations. Other states have funded tiny amounts of their overall obligations. Overall, there is no money set aside to cover 93 percent of the anticipated costs for all retirees’ health care.
To address this problem, states and school districts have begun restricting eligibility to long-term employees, meaning that fewer workers will qualify for health care benefits once they reach retirement years.
New Jersey, for example, offers teachers retiree health care once they’ve taught for at least 25 years, and Texas offers post-employment health-care benefits once teachers have been working for 30 years. But these days, few teachers stay in the profession that long.
At the same time, Aldeman said states might increase required contributions, which could lower take-home pay for teachers. Teachers are paying into the post-employment health care plan, even if they leave the classroom before they’re eligible for the benefits themselves.
“It doesn’t seem like a good deal [for teachers], or a good use of resources [by the state],” he said.
Offering health care benefits for retired teachers has historically been used as a recruitment tool and a way to keep young teachers in the classroom. But there are no studies examining whether the benefit actually affects recruitment, Aldeman said.
In fact, one study of post-employment health care benefits in Illinois found that teachers actually retire earlier than they otherwise would have when they have access to retiree health insurance.
States have similar problems with their pension systems. Unfunded liabilities have forced some states to make adjustments to their pension plans—including Kentucky, which sparked massive teacher unrest this spring.
Aldeman said policymakers should consider potential solutions, like limiting future benefits to retirees who have not yet qualified for Medicare or to retirees who don’t have generous pensions. Policymakers could also reconsider what coverage they provide, shifting from “Cadillac"-style plans to modest “catastrophe” plans.
State legislatures, he said, are likely to pick up the issue in the near future.
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A version of this news article first appeared in the Teacher Beat blog.