Clark and Sandler Morrill assess the status of public retiree health care plan financing through analysis of state level governments in the United States. They examine the plans as of May/June 2009 through an economic lens, something that has been lacking in most analyses in the public sector. To perform their analysis, they compare such plans to the private sector and to public pension systems to document the differences in legal implications as well as political implications. Their intention is to help educate interested parties and especially policy-makers at the state level so that better decisions can be made, particularly concerning funding liabilities by these governments.

The book notes that although public retirement plans have had a long history in the United States, public retiree health plans came primarily after 1960. The authors indicate that competitiveness in attracting and retaining good employees played a large role in the development of such plans. I would add that the explosion in public employee bargaining also played a major role along with the fact that employers could promise such a benefit while delaying paying for it, often long after they had moved on to another political office and would not have to answer to the electorate for the decision. At the same time, there would be short-term political gain in the support they received from union members and their families.

One of the most interesting facts the authors bring out is that in both the public and private sectors, retiree health plan liabilities did not need to be reported in financial reports. In 1989, the Financial Accounting Standards Board (FASB) at the national level required all private employers to include promises of medical plans as part of their accrued liabilities. This requirement led to the abandonment of retiree health plans by many private sector employers. It was not until 2004 that another national agency, the Government Accounting Standards Board (GASB) required the same type of reporting from public sector employers. The impact was not the same for the public sector probably because it is politically more difficult for public employers to do away with such plans. The authors also point out that public employers can cancel retiree health benefits if they want to because, contrary to the situation with public pensions, there is no legal impediment to doing so. With public pensions, many state constitutions and state laws stipulate that the benefit cannot be reduced or eliminated. Such is not the case with health benefits.

The largest part of the book concerns the liabilities of state governments for the retiree health plans. The authors do a painstaking job of detailing the provisions of the individual state plans and the factors that affect the liability implications of them. They address the fact that plans vary greatly among the states and assess what is behind the variability. States plans vary in the generosity of benefits, assumptions about investing discount rates, whether they have trust funds to pay for the benefits (most do not), whether the employer subsidizes premiums for the insurance, and whether they have collective bargaining for their employees, among other factors. They find that premium subsidy levels and generosity of benefits play a large part in differences in unfunded liabilities.

To complicate the issues involving public retiree health plans, states also vary greatly in who is covered by plans. Some plans cover all public employees in both state and local governments, some cover only state level employees, some have separate plans for public safety employees and public school teachers are covered separately in most states. The authors do a good job of accounting for these differences in their analyses. They provide a separate chapter on teachers as they are so numerous and they have separate plans in most states.

This book is very timely as all governments in the United States have experienced significant financial strains in the past few years and public officials are trying to address the issue in many different ways. One attempt is to curb pension and health benefit plans. The idea is a popular one as in some jurisdictions, the issue has been put up to a popular vote in local elections and voters have voted to reduce or cancel retirement and health plans including retiree health plans. At the same time, public employee organizations have gone to court to try to protect their benefits. There is sure to be a variety of decisions regarding the issue depending on the state and policy details. Such is an inherent part of the federal system.

The authors never explicitly answer the question posed in the title, ‘Is There a Funding Crisis.’ However, the details of their analysis suggest that the answer is a qualified yes. Clearly some states are facing a crisis because of poor planning and preparation for the liabilities they face while others will be able to fare well. This book should be read by all who have any responsibility for developing and implementing public retiree health plans.