Skyrocketing retiree health care costs threaten
to drain San Francisco budget
By Elizabeth Pfeffer
August 2, 2006
Newly projected health care costs for retired City workers are
expected to approach $5 billion over the next 30 years, with no
monies set aside to cover their openhanded benefits packages.
As it stands now, persons employed by the City and County of
San Francisco for five consecutive years receive the same coverage
as during employment, full individual and half spousal coverage
at age 50.
What makes the package especially generous is that the work term
can occur at any point in life. In other words, a person can serve
the City in their early 20s, move on to financial success in the
private sector, and still cash in on full health care upon retirement.
"This is something that is going to be crippling to the
City if we don't begin to address it now," warned Supervisor
Sean Elsbernd at the July 11 Board of Supervisors meeting.
As a member of the Health Services Board he called for hearings
before that body and the Board of Supervisors.
"There are a lot of difficult choices that are going to
need to be made to address this - things that a lot of people
are going to have a knee-jerk reaction to," Elsbernd said.
"We need to move beyond that, if we don't we're going to
have serious problems."
One of the changes Elsbernd will propose after the Board's August
hiatus is to stratify the benefit infrastructure so it models
State workers vest in their retirement benefits based on how
long they're employed. Eligibility for health care begins after
10 years, at which point a person receives partial coverage, but
they would have to stay on longer to receive full benefits at
It's probably going to be highly controversial and highly contested,
said Rebekah Krell, legislative aide to Elsbernd.
Under a relatively new Governmental Accounting Standards Board
rule, state and local governments are required to report on postemployment
benefits plans so they can address these types of obstacles.
This is the first year the Controller's Office has issued a report
on retiree health care packages.
The report showed that the existing policy costs retired workers
less than $600 a year, while the City pays anywhere from $734
to $935 a month per individual, and the rates are increasing exponentially.
Another idea to be discussed in September is a recommendation
by the Controller's Office to replicate the structure for pension
Currently health care is paid on a month-to-month basis, but
if the City and its employees paid into a retiree health care
fund earlier on, it would generate about $2 billion in interest
over 30 years, thus taking a bite out of the $5 billion unfunded
liability anticipated by the Controller's Office.
San Francisco isn't alone in their struggle to balance budgets
and benefits, said Jason Dickerson, principal fiscal and policy
analyst for the California legislative analyst's office.
According to a recent study by the California State Association
of Counties, full coverage after five years is not unusual for
California counties, said Dickerson, whose expertise are in retirement
and public employer - employee relations
"This is all relatively new," Dickerson said. "Keep
in mind that when you go back 20 or more years, employer health
care costs for employees were much less than they are now."
Indeed, health care was not a major driver of costs in the 1960s.
The state of California first enacted legislation to specify the
number of years required to receive postemployment health benefits
"Government efforts to reign in interests only occurred,
in earnest, in the last 15-20 years," Dickerson said.
It's become difficult to manage in the last few years because
the cost of health care has been growing faster than inflation.
The reasons are in the many with advanced technology and expensive
pharmaceuticals topping the list.
Unlike a lot of counties dealing with staggering health care
costs, San Francisco has an exceptionally well-funded pension
plan, Dickerson said.
"So compared to some other cities, San Francisco might not
be that bad off."