Roughly $1 trillion in unfunded healthcare liabilities will put more pressure on state and local governments than pension costs, according to two Federal Reserve Board of Governors senior economists whose paper was recounted by Reuters.
These unfunded retiree health obligations "exert pressure on state and local budgets long before the pension plans do, even though the size of the pension problem is significantly greater in the long run," wrote Byron Lutz and Louise Sheiner in a paper to be published in the next couple of months.
The future pension shortfall is about twice as large as the unfunded health liabilities, the two economists said, according to Reuters, which reported on the pair's discussion of preliminary findings during a municipal finance conference in Boston.
Because so many government employees retire before age of 65, when they become eligible for Medicare benefits, states and municipalities end up paying for years of retiree healthcare coverage, Reuters noted.
Some cities are trying to change that, the news service reported. The cities of Chicago and Detroit are trying to push their employees into the state health insurance exchanges created under the federal Affordable Care Act, Reuters said.
In Michigan, it's not just Detroit that's in trouble. The government of Macomb County, just north of Detroit, says its retiree healthcare plan is underfunded by more than $500 million, the Detroit Free Press reported.
Meanwhile, nonprofit hospitals have their own financial burdens in the form of huge pension obligations and expenses. Standard & Poor's reports that the median funded status of hospital defined benefit pension plans fell to 69.4 percent in 2012 from 72.6 percent in 2011.