California’s struggling to pay for health care for retired state employees, with an estimated $72 billion in medical costs coming in the next 30 years. Gov. Jerry Brown’s solution: Make workers start contributing money to pay for the health care they’ll need after retiring.
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Three years ago Brown pushed through a pension system reform to increase the amount public workers must contribute to their pensions, but that effort left health costs for retirees untouched. And while pensions are certainly in trouble, retiree health care is potentially a much bigger deal. Health-care inflation rises faster than pension inflation, and unlike with pensions, employers are not required to prefund health benefits. (The U.S. Postal Service is a notable exception, and don’t think they don’t complain about it.)
Until recently, the courts had regularly said that health-care benefits must be honored. In January, that changed: The Supreme Court unanimously decided that retiree health benefits are not necessarily guaranteed. Retirees who once worked for M&G Polymers USA sued because they were suddenly required to contribute to their health-care costs. Free health care for life wasn’t explicitly promised in their contract, but the retirees claimed that health benefits, like vested pensions, can’t be taken away. The court disagreed.