Diagnosis: Disaster - The $44 billion price tag of state retiree health insurance

8/2/2019 Diagnosis: Disaster - The $44 billion price tag of state retiree health insurance

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The problemIllinoisans are beginning to see the dangers of

another unfunded liability: free or subsidized

health care for retired state workers.

The state has liabilities of more than $100 bil-lion in health benets for state retirees during

the next 30 years, yet it has set aside nothing

to pay for them.1 These unfunded liabilities are

growing 2½ times faster than state revenues and,

if left unreformed, will work in tandem with ris-

ing pension costs to dramatically cut govern-

ment services. One of those services is health

care to the poor and disadvantaged.

In Illinois, three general groups of people re-

ceive free or subsidized health care:

• The state’s poor, both children and

adults;

• The disabled and the elderly; and

• Retired state employees, many who sit

on million dollar pensions.

The state simply cannot pay the health care costs

of all these groups, and certainly not with the

costs of the federal health reform, more com-

monly known as ObamaCare, on the horizon.

Generous health care coverage for retired state

employees competes with resources for the

steadily eroding services that Illinois’ poor re-

ceive under Medicaid. The state’s budget woes

and mismanagement of Medicaid already have

led to low reimbursement rates and long pay-

ment delays to doctors and hospitals, leaving the

state’s most vulnerable population with few op-

tions.2-7 They must wait much longer to receive

care, if they can get it at all.8-9 With nowhere left

to turn, Medicaid patients have no choice but

to seek nonurgent care from hospital emergency

rooms.10-11 The program’s mismanagement hascreated huge access barriers that only will wors-

en in the coming years as more unpaid bills pile

up and ObamaCare kicks in.12-13

Meanwhile, many state retirees contribute little

or nothing to their health insurance premiums.

In fact, for the state’s largest retiree health pro-

gram, the State Employee Group Insurance Pro-

gram, retirees only contribute 9 percent toward

their premiums. That’s a lot less than other states,

which require state retirees to pay six times thatamount.14 In the private sector, the vast majority

of retirees are not offered coverage at all, and

the few who are must pay the majority of their

insurance costs.15-16

Finally, to make matters worse, the state’s health

coverage policies incentivize early retirement of

state employees, signicantly driving up costs

for the state.

State politicians have a clear choice on the re-

form of retiree health care costs. If they failto act, they will continue to favor free Cadillac

coverage for well-off state retirees, while the

most vulnerable search for a doctor willing to

see them.17-18 The state’s prioritization of retir-

ees over core government services and the social

safety net already has hurt many. As the cost of

providing these generous benets continues to

climb, it only will get worse.

Jonathan Ingram is a Health Care Policy Analyst with the Illinois Policy Institute.

Diagnosis: Disaster

The $44 billion price tag of state retiree health insurance

H e a l t

h C a r e

B r i e f F e b r u a r y 2 8 ,

2 0 1 2



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Fortunately,

there is a

solution for

Illinois. The

solution

properly aligns state

retiree

benets in

Illinois with

those in other

states by

taking intoaccount a

retiree’s years

of service, age

at retirement

and ability to

pay.

and more state money will be redirected from

other core government services.

The state pays for the costs of these heath

care plans each year from that year’s revenues.

These costs are expected to rise an average of 4.5 percent a year, although this future growth

might be understated, as it is far below the his-

torical average. 20-21

Even so, it is almost two times faster than the

state’s expected tax revenue growth. Even as-

suming the modest 4.5 percent growth in re-

tiree health care costs, the total cost to tax-

payers for providing this insurance will exceed

$100 billion during the next 30 years.22-23 The

latest actuarial valuation for these programs

estimates it has an unfunded liability of almost

$44 billion, the amount the state should set

aside today in order to meet these obligations

in the future.24-25

Fortunately, there is a solution for Illinois. The

solution properly aligns state retiree benets in

Illinois with those in other states by taking into

account a retiree’s years of service, age at retire-

ment and ability to pay. It also reduces incentives

for early retirement by capping subsidies for fu-ture retirees, ensuring that those who choose to

retire several years early are not given special re-

wards.

The state’s three major insurance programs

Illinois administers three major health insur-

ance programs for retired state employees; the

State Employee Group Insurance Program, or

SEGIP; the Teachers Retirement Insurance Pro-

gram, or TRIP; and the College Insurance Pro-

gram, or CIP. Together, these three programs

provide health insurance coverage to more

than 180,000 retirees, dependents and surviving

spouses.19 As the costs of providing retirees with

this benet continue to climb, however, more

Program Enrollment Serves

State Employee GroupInsurance Program 110,862

Retired employees of state agencies, boards, commissions,universities and elected ofcials

Teachers RetirementInsurance Program

65,031 Retired employees of school districts

College Insurance Program 5,539 Retired employees of community colleges

Graphic 1. More than 180,000 people receive

state-provided retiree health insurance

Total retirees, dependents and surviving spouses with state-provided health insurance in 2009

Source: Illinois Policy Institute calculations.

Graphic 2. Retiree health insurance to cost taxpayers

more than $5 billion annually within 30 years

Annual employer costs for retiree health insurance, by program




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Altogether

the state p

more than

90 percent

the costs fo

retirees’ S

Employee

Group

Insurance Program

coverage.

Separately, the state pays for TRIP and CIP in-

dividually through a combination of retiree pre-miums and payroll contributions from active

employees, local school districts or community

colleges and the state.29 In many communities,

the local school district pays the full teacher

share of TRIP as a benet, much as they pay the

teacher pension contributions.30

For comparison, Graphic 3 shows that other

states only cover 46 percent of the health care

premium costs, while Illinois’ three systems sub-

sidize signicantly more. 31 See Appendix A for

a breakdown of annual employer costs by pro-

gram and revenue components.

Who pays for state retirees’ health care?

The state nances each of these programs

through different means, but the vast majority is covered with state and local money (see Ap-

pendix A for the methodology used throughout

this report).

The state nances SEGIP through a combina-

tion of retiree premiums and state contributions.

Members who retired before 1998 pay no por-

tion of their premiums and, therefore, receive

free coverage. Members who retired later pay 5

percent less of the total premium for every year

of service.26-27 This means that employees who

worked for 20 years or more pay no portion of

their premiums. Altogether, the state pays more

than 90 percent of the costs for retirees’ SEGIP

coverage.28

Graphic 3. Taxpayers shoulder larger burden

in Illinois than in other states

Employer share of retiree health insurance costs, by program




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With little to

no money set

aside for these

future costs,

the actuarial

shortfall today is equal

to almost

$44 billion.

cent annually, more than twice the rate of Il-

linois’ tax revenues.

With little to no money set aside for these fu-

ture costs, the actuarial shortfall today is equal

to almost $44 billion.

Graphics 5, 6, and 7 (below, and page 5) show

the detail of each program’s money sources

and the increasing requirements on General

Funds sources.

State retiree health care costs

These programs will cost Illinois more than

$100 billion during the next 30 years. Because

the state has not designated money for these

three programs, they operate on a yearly pay-as-

you-go basis. This means that as retiree health

care costs rise faster than the state’s total rev-enues, they will squeeze out state spending on

other core services. As can be seen in Graphic 4,

these costs are expected to increase by 4.5 per-

State

retirement

insuranceprogram

Full

employer

cost over30 years

Unfunded

liability

Average

annual

projected

increasein cost

Projected

FY2013

taxpayercost

Projected

FY2041

taxpayercost

General

Revenue

Fund costin FY2041

SEGIP $62.1 $27.1* 3.7% $1.1 $2.8 $1.9

TRIP $37.3 $14.9 5.7% $0.5 $2.3 $0.9

CIP $4.7 $1.9 5.6% $0.1 $0.2 $0.1

Total¹ $104.1 $43.9 4.5% $1.6 $5.2 $2.9

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2009 2013 2017 2021 2025 2029 2033 2037 2041

M i l l i o n s

GeneralRevenueFund Otherstatefunds

Graphic 5. SEGIP coverage to cost taxpayers

almost $3 billion annually within 30 years

Excludes retiree contributions

Graphic 4. Current and projected costs of

providing health care programs ($ billions)

*For a breakdown of SEGIP’s unfunded liability by retirement system, see Appendix B¹Totals might not sum because of rounding




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It should b

clear that

the costs of

providing

these progr

grow, and

because no

money has

been set asto cover th

future cost

fewer state

resources w

be availab

to provide

for other core service

including t

state’s safe

net.

Graphic 6. TRIP coverage to cost taxpayers

more than $2 billion annually within 30 years


$0

$500

$1,000

$1,500

$2,000

$2,500

2009 2013 2017 2021 2025 2029 2033 2037 2041

M i l l i o n s

GeneralRevenueFund Otherstateandlocalfunds

Graphic 7. CIP coverage to cost taxpayers

almost $250 million annually within 30 years


$0

$50

$100

$150

$200

$250

2009 2013 2017 2021 2025 2029 2033 2037 2041

M i l l i o n s

GeneralRevenueFund Otherstateandlocalfunds

It should be clear that as the costs of providing these programs grow, and because no money has been

set aside to cover these future costs, fewer state resources will be available to provide for other core

services, including the state’s safety net. In order for Illinois to continue to provide for those most in

need, the state must reform these programs.



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There is no

single “silver

bullet” for

skyrocketing

retiree health

care costs.Instead, the

state will

need multiple

reforms that,

together,

ensure that

the cost of providing

these benets

does not

crowd out

other state

spending.

benet points and income brackets.

Because early retirees are the most

expensive to cover, this proposal

would save the state several billion

dollars during the next 30 years.

3. Ending retiree subsidies.

Private sector employees rarely are

offered retiree health insurance.

When they are offered coverage,

many have to pay the full cost of

their premiums. Because the state

already has increased the pension

“full benet” retirement age to

67 for newly hired employees, it

simply should end retiree subsidies

for new hires, as well. These new

employees will be Medicare-

eligible by the time they are able

to collect their full benets,

making the state’s supplemental

coverage largely unnecessary and

even further out of sync with the

private sector.

Yearly savings beginning in scal year 2013

are expected to equal $425 million when com-

pared with scal year 2012. Total ve-year sav-ings will be $2.7 billion when compared with

spending under the status quo retiree health

care plan. Savings in the longer term also will

rise as the number of early retirements cease

and as the number of new employees with no

benets increase.

The solution: Reform OPEB There is no single “silver bullet” for skyrocket-

ing retiree health care costs. Instead, the state

will need multiple reforms that, together, ensure

that the cost of providing these benets does

not crowd out other state spending. These re-

forms include:

1. Benchmarking benets to other

states.

By benchmarking retiree

contributions to the average

contributions retirees make in other

states, Illinois can save more than

$40 billion in the next 30 years.32

In addition, beginning in scal year

2013, the state should determine

premium subsidies on a sliding scale

according to a combination of a

retiree’s ability to pay, years of service

and retirement age. This would

reward current retirees for lifelong

service, discourage early retirement

and protect low-income retirees.

2. Capping retiree subsidies.

Many employees retire before

reaching retirement age. The stateshould not be rewarding these retirees

for choosing to retire early. Beginning

in scal year 2013, the state should

cap subsidies for all new retirees

at the same level the state pays for

Medicare-eligible retirees in the same



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By having

retirees

contribute

as much

toward the

cost of the

health care

as other st

governmenrequire, th

state can s

more than

$40 billio

during the

next 30 ye

In SEGIP, the state subsidizes coverage based

on service only. Members who retired before

1998 pay no portion of their premiums and,

therefore, receive free coverage. Members who

retired later pay 5 percent less of the total premi-

um for every year of service.37-38 This means that

employees who worked for 20 years or more pay no portion of their premiums. Altogether, the

state pays more than 90 percent of the costs for

retirees’ SEGIP coverage.39

The state must look beyond years of service in

calculating retiree contributions. If it fails to do

so, the unsustainable path will lead to less mon-

ey available for core government programs and

services.

In general, those who retire later in life cost the

state much less than those who retire earlier.

Those who retire later in life will, on average,

Benchmarking benets to other states

Illinois can save a substantial sum by raising state

retiree contribution levels to national averages.

By having retirees contribute as much toward

the cost of their health care as other state gov-

ernments require, the state can save more than

$40 billion during the next 30 years.33

In 2041,the annual savings to taxpayers would be almost

$2 billion in that year alone.34 That $40 billion

could be directed toward solving the coming cri-

sis in Medicaid.35-36

These savings also would reduce the state’s un-

funded liability of $44 billion by $18 billion, or

40 percent. While other reforms are necessary to

reduce the remaining $27 billion unfunded liabil-

ity, increasing retiree contributions is an impor-

tant rst step in getting the state’s scal house in

order and improving its credit.

Graphic 8. Illinois taxpayers can save $40 billion by

increasing retiree contributions to national average

Annual employer costs for retiree health insurance, by program, with and without reform




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While

the state

should seek

to protect

low-income

retirees from rapidly rising

health care

costs, the fact

of the matter

s that most

retirees are

earning more n retirement

than the

average

taxpayer’s

household

ncome.

The state also should base these generous

subsidies on a retiree’s ability to pay. While the

state may wish to protect low-income retirees

from rapidly rising health care costs, the fact

of the matter is that most retirees are earn-

ing more in retirement than the average tax-

payer’s household income.42-45

Those who areable to pay for their own health care should

be required to do so. The state no longer can

afford to provide Cadillac coverage to upper

class retirees at the expense of providing core

services to the poor and the public at large.

The state should determine premium subsi-

dies on a sliding scale according to a combina-

tion of a retiree’s ability to pay, years of service

and retirement age. The formula in Graphic 8

would reduce the state’s contribution from 91

percent to 51 percent.46 If matched in all three

insurance programs, the state would save $34

billion during the next 30 years.47 This formula

could be modied slightly to reduce the state’s

contribution to the national average of 46 per-

cent, further controlling the crowd-out effect

that retiree health insurance has on other pro-

grams.

collect fewer benets, simply because their life

expectancy at the time of retirement is shorter.

When comparing early retirees with those who

retired at 65, the disparity in cost grows. This

largely is because Medicare bears the cost for

much of the care older retirees receive, while the

state must bear the full burden for early retirees.By not accounting for these important factors,

the system punishes the lifelong servant wish-

ing to work until retirement age, while rewarding

those who choose to retire early.

A simple way to take into account retirement age

and years of service is by calculating “benet

points.” The formula for these points is simple:

the number of years of service plus the age at

which the retiree begins to collect benets. As

the benet points scale increases, premium sub-

sidies increase. This new model would reward

lifelong employees for their service and encour-

age people to wait until retirement age before

starting to collect benets.

According to estimates provided to the Com-

mission on Government Forecasting and Ac-

countability, this formula could reduce the state’s

contribution in SEGIP from 91 percent to 55

percent.40 If matched in all three insurance pro-

grams, the state would save $28 billion during

the next 30 years.41

Household

income

Benet points

0 - 78 79 -85 86 - 92 93 +

$0 - $30K 50% 35% 20% 5%

$30K - $60K 60% 45% 30% 15%

$60K - $100K 70% 55% 40% 25%

$100K - $200K 80% 65% 50% 35%

$200K - $250K 90% 75% 60% 30%

$250K + 100% 100% 100% 85%

Graphic 9. Illinois taxpayers can save billions

while still rewarding long service, discouraging early

retirement and protecting low-income retirees

Suggested retiree SEGIP contribution by benet points and ability to pay

BENEFIT POINTS = AGE AT RETIREMENT + YEARS OF SERVICE

Source: Mercer.



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The cost fo

these gener

benets ha

risen by 7.

percent a y

for the pas

decade, wh

revenue on

has grown2.8 percen

Generous health insurance subsidies frequent-

ly lead a greater number of workers to retire

earlier than average and earlier than they might

otherwise choose to retire.55 While the benet

points model will discourage early retirement

to some degree, it is not sufcient to constrainoverall cost growth. The state should discourage

this costly early retirement by capping its sub-

sidies at Medicare-eligible levels. These reforms

would have the added benet of reducing costs

by encouraging retirees to move from the most

expensive health insurance plans into less expen-

sive plans.

There is no reason why taxpayers should be on

the hook for the extra costs associated with state

workers choosing to retire early. Instead, the

state should set aside a dened contribution for

all retirees equal to the subsidy given to Medicare

retirees. If state workers choose to retire before

they are eligible for Medicare, they should be

required to pay for the enormous difference in

these costs. If all the state did was cap subsidies

at the Medicare level, it could save billions of

Capping retiree subsidies for new retirees

Although requiring retirees to contribute toward

the cost of their health insurance achieves signif-

icant savings for taxpayers, it does not substan-

tially slow this growth rate going forward. The

cost for these generous benets has risen by 7.1

percent a year for the past decade, while revenueonly has grown by 2.8 percent.48-50 As these costs

continue to grow far faster than revenues, more

and more valuable government services will be

crowded out of the budget.

In order to control this growth rate, Illinois must

stop subsidizing employees who retire early, as

these early retirees are the most expensive to

provide with coverage. While these retirees rep-

resent only a third of all state retirees, their cov-

erage accounts for almost 60 percent of retiree

health care costs.51 During the past decade, the

cost for early retirees’ health insurance has been

more than twice the cost for those who retire at

65.52 In scal year 2011, non-Medicare retirees

cost $11,585 to cover, compared with $4,530 for

retirees on Medicare.53 Both groups have seen

their costs rise by more than 7 percent a year.54

Graphic 10. Early retirees cost much

more to insure than normal retirees

Average cost per retiree by Medicare status in scal year 2011




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Without

reform,

Illinois

taxpayers

will pay more

than $100billion during

the next 30

years, largely

from general

revenues,

to provide

health nsurance to

state retirees.

cap these subsidies for all new retirees at Medi-

care levels and stop rewarding employees for

retiring early. Because the state has increased

the retirement age to 67 for new employees,

it should end retiree subsidies for these new

hires as well, as they will have Medicare cover-

age by the time they are able to retire.

Yearly savings beginning in scal year 2013

are expected to equal $425 million when com-

pared with scal year 2012. Total ve-year sav-

ings will be $2.7 billion when compared with

spending under the status quo retiree health

care plan. Savings in the longer term will rise

as the number of early retirements cease and

as the number of new employees with no ben-

ets increase.

Even with these reforms, retired state work-

ers will have benets virtually unheard of in

the private sector. The vast majority of private

sector retirees are not offered retiree health in-

surance at all. When they are offered coverage,

they generally pay all or most of the cost of

their premiums.

Retiree health benets are not protected by

the state constitution.61-63 Lawmakers can

change them in order to ensure that the state

can provide assistance to those most vulner-able. The state’s prioritization of retirees over

those most in need has hurt many. If lawmak-

ers care about ensuring that they can provide

health care for the most vulnerable, they must

reform these obligations now.

dollars into the future. However, by implement-

ing capped subsidies and adjusting the subsidy

for years of service, retirement age and ability to

pay, the state nally could be able to bend down

the cost curve. It also could consider indexing

the capped subsidies to an ination-adjusted

formula for future certainty.

Ending retiree subsidies for new employees

Private sector employees rarely are offered re-

tiree health insurance. Only a quarter of large

employers offer health insurance coverage to re-

tirees.56 Small employers, which employ 80 per-

cent of the labor force, only offer coverage to

their retirees 4 percent of the time.57 In all, only

8 percent of all retirees are offered health insur-

ance coverage through their former employers.58

When they are offered coverage at all, many have

to pay the full cost of their premiums.59

The state already has increased the pension “full

benet” retirement age to 67 for newly hired

employees.60 These employees will be eligible for

Medicare by the time they are eligible for full re-

tirement, making the state’s supplemental cover-

age largely unnecessary. If they wish to keep this

coverage, they should be responsible for the en-

tirety of their premiums. This ultimately would

eliminate the state’s future liabilities, showing the

light at the end of the tunnel as the state paysdown the obligations already incurred.

Conclusion Without reform, Illinois taxpayers will pay more

than $100 billion during the next 30 years, largely

from general revenues, to provide health insur-

ance to state retirees. Lawmakers will sink bil-

lions of dollars into providing Cadillac coverage

for well-off retirees instead of protecting the

state’s most vulnerable.

Illinois has no time to waste. It should follow the lead of other states and require retirees in

Illinois to contribute toward the cost of their

health insurance. By simply having Illinois re-

tirees contribute the same share that retirees in

other states contribute, taxpayers will save more

than $40 billion. Beginning next scal year, the

state should determine these premium subsidies

on a sliding scale according to a combination of

a retiree’s ability to pay, years of service and re-

tirement age. Moving forward, the state should



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Appendix A

Methodology

To calculate total employer costs, this report uses employer cost projections provided by Gabriel, Roeder, Smith & Company in

its 2009 GASB No. 43 and No. 45 actuarial valuations for SEGIP, TRIP and CIP. These valuations were prepared for the De-

partment of Healthcare and Family Services and published by the Commission on Government Forecasting and Accountability

To calculate the share of employer costs by revenue source, this report uses historical cost and program revenue data provided

to the Institute by the Department of Healthcare and Family Services. The report uses the 10-year average share for each rev

enue source to distribute the employer cost projections among the different sources of revenue. Where a portion of the costs i

unfunded, this report allocates it to general revenue funds.

To calculate the share of total costs by revenue source, this report uses historical cost and program revenue data provided to

the Institute by the Department of Healthcare and Family Services. Because SEGIP covers current employees and retirees, and

because revenue sources are not allocated between the two classes, this report also uses a study prepared for the Commission on

Government Forecasting and Accountability by Mercer Health & Benets LLC to determine the retiree share of costs within

SEGIP.

To calculate total savings by benchmarking retiree contributions to average retiree contributions in other states, this report uses

contribution data from the Mercer Health & Benets LLC study. This report projects the savings in employer costs from shifting

from the 10-year average of retiree contributions to the benchmarked contributions.

Graphic 11. Share of annual employer cost for SEGIP

coverage, by revenue component, for fiscal years 2002-11

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average

General Revenue Fund 69.7% 71.9% 74.2% 69.7% 70.0% 69.0% 68.0% 67.7% 68.4% 60.6% 68.9%

Road Fund 8.6% 8.5% 7.7% 8.9% 8.3% 8.2% 8.5% 8.9% 9.0% 11.0% 8.7%

Agencyreimbursements

20.2% 18.5% 16.9% 20.2% 20.3% 18.7% 19.3% 19.2% 18.3% 22.6% 19.4%

Other funds 1.5% 1.1% 1.2% 1.3% 1.4% 4.1% 4.2% 4.2% 4.4% 5.9% 2.9%


Graphic 12. Share of annual employer cost for retiree TRIP


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average

General Revenue Fund 48.3% 42.5% 42.2% 40.9% 39.9% 33.9% 30.2% 30.5% 29.7% 28.6% 36.7%

School districts 14.1% 23.6% 21.5% 20.7% 25.3% 23.6% 25.0% 24.6% 24.0% 21.1% 22.4%

Active employees 36.0% 31.8% 34.0% 36.8% 33.7% 31.4% 33.3% 32.8% 32.0% 28.2% 33.0%

Other funds 1.6% 2.1% 2.3% 1.6% 1.1% 11.1% 10.2% 9.1% 9.1% 9.0% 5.7%

Unfunded 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.3% 3.0% 5.3% 13.1% 2.3%




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Graphic 13. Share of annual employer cost for retiree CIP


2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average

General

Revenue Fund31.1% 30.7% 28.6% 19.6% 25.5% 25.6% 29.1% 20.6% 17.2% 16.6% 24.5%

Communitycolleges

31.5% 32.1% 29.8% 21.8% 23.5% 24.5% 23.4% 18.9% 17.1% 16.6% 23.9%

Activeemployees

31.6% 32.1% 29.8% 21.8% 23.5% 24.5% 23.4% 18.9% 17.1% 16.6% 23.9%

Other funds 5.8% 5.2% 4.8% 5.0% 7.1% 21.8% 13.1% 10.7% 13.7% 13.2% 10.0%

Unfunded 0.0% 0.0% 6.9% 31.9% 20.4% 3.5% 10.9% 30.9% 35.0% 37.0% 17.7%




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Appendix B

Graphic 14. SERS and SURS make up majority of SEGIP costs

Annual employer cost for retiree SEGIP coverage, by retirement system


Members of ve retirement systems receive retiree health insurance through SEGIP. Members of the State Employees’ Retire

ment System, SERS, make up the largest share of those costs, with an unfunded liability of $16.5 billion. The next largest share

belongs to members of the State Universities Retirement System, SURS, which has an unfunded liability of $9.9 billion.

Members of the remaining three retirement systems make up a much smaller percentage of the overall costs. Members of the

Teachers’ Retirement System, TRS, have an unfunded liability of $414 million; members of the Judges’ Retirement System, JRS

have an unfunded liability of $266 million; and members of the General Assembly Retirement System, GARS, have an unfunded

liability of $82 million.64

Graphic 15. SEGIP unfunded liabilities

total more than $27 billion

SEGIP unfunded liabilities, by retirement system

SERS SURS TRS JRS GARS All systems

$16.5 billion $9.9 billion $414 million $266 million $82 million $27.1 billion

Source: GASB No. 45 actuarial valuations for SEGIP.



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denied an appointment for urgent follow-up care, even at safety

net clinics. See, e.g., Brent R. Asplin et al., “Insurance status and access to urgent ambulatory care follow-up appointments,”

Journal of the American Medical Association 294(10): 1248-

54 (2005), http://jama.ama-assn.org/content/294/10/1248.

10 Medicaid patients, on average, use emergency rooms twice

as often as privately insured and uninsured patients. See, e.g., National Center for Health Statistics, “Health, United States,2010: With special feature on death and dying,” Centers for

Disease Control and Prevention (2011), http://www.cdc.gov/nchs/data/hus/hus10.pdf.

11 Between 1997 and 2007, per-capita emergency room use

increased for Medicaid patients and decreased for uninsured and privately insured patients. Emergency room use for preventable

conditions was much higher for Medicaid patients than privately

insured and uninsured patients. See, e.g., Ning Tang et al.,“Trends and characteristics of US emergency department visits,

1997-2007,” Journal of the American Medical Association 304(6): 664-70 (2010), http://jama.ama-assn.org/

content/304/6/664.

12 Illinois will need to appropriate $3.1 billion more in scal year 2013 than in 2012 just to keep a record six-month

backlog and $2.4 billion in unpaid bills. Without reform or

additional appropriations, the state’s Medicaid program will be almost $5 billion in debt to hospitals and doctors. See, e.g.,

Jonathan Ingram, “Medicaid FAIL: Why cutting appropriations doesn’t control costs,” Illinois Policy Institute (2011), http://

illinoispolicy.org/uploads/les/MedicaidFAIL.pdf.

13 Illinois can expect to pay another $1.4 billion from state funds on Medicaid the rst year that ObamaCare’s massive

expansion of Medicaid kicks in. See, e.g., Jonathan Ingram,

“Overloaded: One in three Illinoisans on Medicaid by 2019?” Illinois Policy Institute (2011), http://illinoispolicy.org/

uploads/les/overloaded10-20.pdf.

14 Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and

Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCo

ntributions.pdf.

15 About 80 percent of the labor force work for employers with fewer than 500 employees. Only 4 percent of these employers

offer coverage. About 20 percent of the labor force work for large

employers. Only 25 percent of these employers offer coverage.See, e.g., Mercer Health & Benets LLC, “Retiree Healthcare

Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/

cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCo

ntributions.pdf.

16 The average retiree contribution rate for large employers is

54 percent. See, e.g., Mercer Health & Benets LLC, “Retiree

Healthcare Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/

commission/cgfa2006/Upload/2011-MAY-17MercerRetireeH ealthcareContributions.pdf.

Endnotes1 Author’s calculations based upon 2009 GASB No. 43 and

No. 45 reporting of total members by status for SEGIP, TRIP and CIP.

2 Only six states have lower Medicaid reimbursement fees. For

primary physicians, these fees only are 57 percent of the already-

low Medicare r eimbursement fees. See, e.g., Stephen Zuckerman et al., “Trends in Medicaid physician fees, 2003–2008,” Health

Affairs 28(3): 510-19 (2009), http://content.healthaffairs.org/

content/28/3/w510.full.html.

3 The state’s long payment delays and low reimbursement rates

discourage doctors from accepting Medicaid patients. See, e.g.,Peter J. Cunningham & Ann S. O’Malley, “Do reimbursement

delays discourage Medicaid participation by physicians?” Health Affairs 28(1): 17-28 (2008), http://content.healthaffairs.org/

content/28/1/w17.full.html.

4 Medicaid patients are six times more likely than privately insured patients to be denied an appointment with a specialist.

When they can get an appointment, they must wait weeks or months

longer before seeing a doctor. See, e.g., Joanna Bisgaier & Karin V. Rhodes, “Auditing access to specialty care for children with

public insurance,” New England Journal of Medicine 362(24): 2324-33 (2011), http://www.nejm.org/doi/full/10.1056/

NEJMsa1013285.

5 Medicaid patients are more likely than the uninsured to be denied an appointment for urgent follow-up care, even at safety net

clinics. See, e.g., Brent R. Asplin et al., “Insurance status and access to urgent ambulatory care follow-up appointments,” Journal of the

American Medical Association 294(10): 1248-54 (2005), http://

jama.ama-assn.org/content/294/10/1248.

6 Medicaid patients, on average, use emergency rooms twice as often as privately insured and uninsured patients. See, e.g., National

Center for Health Statistics, “Health, United States, 2010: With special feature on death and dying,” Centers for Disease Control

and Prevention (2011), http://www.cdc.gov/nchs/data/hus/hus10.pdf.

7 Between 1997 and 2007, per-capita emergency room use

increased for Medicaid patients and decreased for uninsured and

privately insured patients. Emergency room use for preventable conditions was much higher for Medicaid patients than privately

insured and uninsured patients. See, e.g., Ning Tang et al., “Trends and characteristics of US emergency department visits, 1997-

2007,” Journal of the American Medical Association 304(6): 664-70 (2010), http://jama.ama-assn.org/content/304/6/664.

8 Medicaid patients are six times more likely than privately

insured patients to be denied an appointment with a specialist.When they can get an appointment, they must wait weeks or months

longer before seeing a doctor. See, e.g., Joanna Bisgaier & Karin

V. Rhodes, “Auditing access to specialty care for children with public insurance,” New England Journal of Medicine 362(24):

2324-33 (2011), http://www.nejm.org/doi/full/10.1056/ NEJMsa1013285.

9 Medicaid patients are more likely than the uninsured to be



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ributions.pdf.

29 Gabriel Roeder Smith & Company, “Teachers Retirement

Insurance Program: GASB No. 43 actuarial valuation report,” Commission on Government Forecasting and Accountability

(2009), http://www.ilga.gov/commission/cgfa2006/Upload/FY2009TRIPGASBvaluation.pdf.

30 Author’s review of hundreds of school district collective

bargaining agreements. School districts pick up all or some of a

teacher’s pension contributions in 84 percent of school districts. See,e.g., Ted Dabrowski & Michael Wille, “Teachers’ pensions: Who’s

really paying?: Many teachers contribute nothing; taxpayers shoulder burden,” Illinois Policy Institute (2011), http://illinoispolicy.org/

uploads/les/teacherpensions10-13.pdf.

31 About 80 percent of the labor force work for employers with fewer than 500 employees. These small employers rarely offer

this coverage. About 20 percent of the labor force work for large employers. Only 25 percent of those large employers offer coverage.

When coverage is offered, retirees must pay more than half of the

cost of their premiums. See, e.g., Mercer Health & Benets LLC,“Retiree Healthcare Contributions,” Commission on Government

Forecasting and Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHeal

thcareContributions.pdf.

32 Author’s calculations based upon 2009 GASB No. 43and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for

scal years 2012-41, historical trends in revenue component shares

for scal years 2002-11, and benchmarked retiree contributions.Figures assume a current retiree contribution trend of 9.1 percent

for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP.Figures also assume a benchmarked retiree contribution of 54

percent.


scal years 2012-41, historical trends in revenue component shares

for scal years 2002-11, and benchmarked retiree contributions.Figures assume a current retiree contribution trend of 9.1 percent

for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP.Figures also assume a benchmarked retiree contribution of 54

percent.


scal year 2041, historical trends in revenue component shares for

scal years 2002-11, and benchmarked retiree contributions.

35 Medicaid underfunding has left the state with $2.4 billion in

unpaid bills. Without reform, these unpaid bills likely will grow to

almost $5 billion by the end of scal year 2013. See, e.g., Jonathan Ingram, “Medicaid FAIL: Why cutting appropriations doesn’t

control costs,” Illinois Policy Institute (2011), http://illinoispolicy.org/uploads/les/MedicaidFAIL.pdf.

36 ObamaCare’s massive expansion of Medicaid will

cost the state more than $62.8 billion by 2041. See, e.g., Jagadeesh Gokhale, “The new health care law’s effect on state

Medicaid spending: A study of the ve most populous states,”

Cato Institute (2011), http://www.cato.org/pubs/wtpapers/

17 In general, state-provided health insurance benets for

employees and retirees are far more generous than the benets provided in the private sector. See, e.g., Josh Barro, “Cadillac

coverage: The high cost of public employee health benets,” Manhattan Institute (2011), http://www.manhattan-institute.org/

pdf/cr_65.pdf.

18 About 80 percent of the labor force work for employers with fewer than 500 employees. These small employers rarely offer retiree

coverage at all. About 20 percent of the labor force work for large

employers. Only 25 percent of those large employers offer coverage.When coverage is offered, retirees must pay more than half of the

cost of their premiums. See, e.g., Mercer Health & Benets LLC,“Retiree Healthcare Contributions,” Commission on Government

Forecasting and Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHeal

thcareContributions.pdf.

19 Author’s calculations based upon 2009 GASB No. 43 and

No. 45 reporting of total members by status for SEGIP, TRIP and CIP.


No. 45 actuarial valuations for SEGIP, TRIP and CIP for scal years 2012-41.

21 This is substantially below the historical average of 7.1

percent a year.


No. 45 actuarial valuations for SEGIP, TRIP and CIP for scal

years 2012-41.

23 The total cost to taxpayers represents the total employer cost:

total liabilities less retiree contributions. While a portion of these costs is paid by payroll deductions from active employees in TRIP and CIP, these deductions often are picked up by local school districts

and community colleges.

24 Author’s calculations based upon 2009 GASB No. 43 and No. 45 actuarial valuations for SEGIP, TRIP and CIP.

25 GASB No. 43 and No. 45 actuarial valuations were

required for scal year 2011, but have not been completed as of the date of this publication.

26 Members of TRS and SURS receive the state contribution

starting at the fth year of service. Members of SERS receive the

state contribution starting at the eighth year of service. Members of GARS receive the state contribution starting at the fourth year of

service. Members of JRS receive the state contribution starting at the sixth year of service.

27 State Employees Group Insurance Act, 5 ILCS

375/10 (2011), http://www.ilga.gov/legislation/ilcs/documents/000503750K10.htm.

28 Mercer Health & Benets LLC, “Retiree healthcare

contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/

cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont



of 17

Accountability (2011), http://www.ilga.gov/commission/

cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf.

47 Author’s calculations based upon 2009 GASB No. 43

and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for scal years 2012-41, historical trends in revenue component

shares for scal years 2002-11, and benchmarked retiree contributions. Figures assume a current retiree contribution trend of 9.1 percent for SEGIP, 40.9 percent for TRIP and 38.4

percent for CIP. Figures also assume a benchmarked retiree contribution of 45 percent.

48 Author’s calculations based upon historical GRF

expenditures for SEGIP, TRIP and CIP.

49 Author’s calculations based upon historical revenue growth for scal years 2002-10, indexed from scal year 2002, as

reported by the National Association of State Budget Ofcers.See, e.g., Brian Sigritz et al., “State expenditure r eport:

Examining scal 2009-2011 state spending,” National

Association of State Budget Ofcers (2011), http://nasbo.org/LinkClick.aspx?leticket=C3LJlSFxbdo%3d&tabid=79.

50 Author’s calculations based upon historical state-source

general revenue growth for scal years 2002-10, indexed from scal year 2002, as reported by the Commission on Government

Forecasting and Accountability. See, e.g., Dan R. Long, “FY 2012 economic forecast and revenue estimate and FY 2011

revenue update,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/

cgfa2006/Upload/FY12econforecastrevestimate.pdf.

51 Author’s calculations based upon costs and enrollment gures for scal year 2011 in SEGIP, TRIP and CIP for

Medicare and non-Medicare retirees.

52 Author’s calculations based upon historical trends in per-member costs in TRIP and CIP for scal years 2002-11

for Medicare and non-Medicare retirees. HFS ofcials could not provide the 10-year historical data for per-member costs

in SEGIP for Medicare and non-Medicare retirees. In scal

year 2011, the cost gap between Medicare and non-Medicare retirees was slightly larger in SEGIP than in TRIP or CIP.

Accordingly, it is likely that SEGIP saw similar growth rates for Medicare and non-Medicare retirees.

53 Author’s calculations based upon per-member costs in

SEGIP, TRIP and CIP for scal year 2011, for Medicare and non-Medicare retirees.

54 Author’s calculations based upon historical trends in per-

member costs in TRIP and CIP for scal years 2002-11 for Medicare and non-Medicare retirees, indexed at 2002 levels.

55 Steven Nyce et al., “Does Retiree Health Insurance

Encourage Early Retirement?” National Bureau of Economic Research (2011), http://www.nber.org/papers/w17703.

56 About 25 percent of employers with 500 or more

employees offer health insurance coverage to pre-Medicare-eligible

StateMedicaidSpendingWP.pdf.

37 Members of TRS and SURS receive the state contribution

starting at the fth year of service. Members of SERS receive the state contribution starting at the eighth year of service. Members of

GARS receive the state contribution starting at the fourth year of service. Members of JRS receive the state contribution starting at the

sixth year of service.

38 State Employees Group Insurance Act, 5 ILCS

375/10 (2011), http://www.ilga.gov/legislation/ilcs/documents/000503750K10.htm.

39 Mercer Health & Benets LLC, “Retiree healthcare

contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/

cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont ributions.pdf.

40 Mercer Health & Benets LLC, “Retiree Healthcare

Contributions,” Commission on Government Forecasting and

Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContri

butions.pdf.

41 Author’s calculations based upon 2009 GASB No. 43

and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for

scal years 2012-41, historical trends in revenue component shares for scal years 2002-11, and benchmarked retiree contributions.

Figures assume a current retiree contribution trend of 9.1 percent for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP.

Figures also assume a benchmarked retiree contribution of 45

percent.

42 The average rst-year pension for TRS members who retired

in 2010 with 30 years of credible service was $65,109. See, e.g.,

Kristina Rasmussen, “Average $30,000 pension?: Pensions may be larger than they appear,” Illinois Policy Institute (2011), http://

illinoispolicy.org/uploads/les/FactFinderPensions.pdf.

43 The average rst-year pension for SURS members whoretired in 2010 with 30 years of credible service was $68,203. See,

e.g., Kristina Rasmussen, “Average $30,000 pension?: Pensions may be larger than they appear,” Illinois Policy Institute (2011),

http://illinoispolicy.org/uploads/les/FactFinderPensions.pdf.

44 About 54 percent of retirees with SEGIP coverage have household incomes greater than $60,000. See, e.g., Mercer Health

& Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17Merc

erRetireeHealthcareContributions.pdf.

45 The median household income in Illinois is $50,761. See, e.g.,U.S. Census Bureau, “Median household income by state: 1984

to 2010,”Current Population Survey: 2010 Annual Social and Economic Supplement, http://www.census.gov/hhes/www/income/

data/historical/household/2010/H08_2010.xls.

46 Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and



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retires, while 19 percent offer health insurance coverage to Medicare-

eligible retirees. See, e.g., Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting

and Accountability (2011), http://www.ilga.gov/commission/

cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont ributions.pdf.

57 About 4 percent of employers with 10 to 499 employees offer health insurance coverage both to pr e-Medicare-eligible retirees

and Medicare-eligible retirees. See, e.g., Mercer Health & Benets

LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.

ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRet

ireeHealthcareContributions.pdf.

58 Author’s calculations based upon Mercer reports of offer rates

by small and large employers and share of labor force by small and

large employers.

59 One-third of large employers that offer retiree health

insurance require the retiree to pay the entire premium. See,

e.g., Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and

Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont

ributions.pdf.

60 Illinois Pension Code, 40 ILCS 5/1-160 (2012), http://www.ilga.gov/legislation/ilcs/documents/004000050K1-160.htm.

61 Illinois law specically states that TRIP benets are not

protected under the pension clause of the state constitution. See, e.g.,5 ILCS 375/6.5(h) (2012).

62Illinois law specically states that CIP benets are not protected under the pension clause of the state constitution. See, e.g.,

5 ILCS 375/6.9(h) (2012).

63 Retiree health insurance is unprotected by the New York

Constitution’s pension clause, which was the model for the Illinois Constitution’s pension clause. See, e.g., Lippman vs. Board of

Education of the Sewanhaka Central High School District, 66

N.Y. 2d 313 (1985).

64 Gabriel Roeder Smith & Company, “Illinois State

Employees Group Insurance Program: GASB No. 45 actuarial valuation report,” Commission on Government Forecasting

and Accountability(2009), http://www.ilga.gov/commission/

cgfa2006/Upload/FY2009StateGASBvaluation.pdf.

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Diagnosis: Disaster - The $44 billion price tag of state retiree health insurance

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