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State Retiree Health Benefits Under Attack in Long Look At Fiscal Crisis

By Dan Haar

April 18, 2013

Connecticut must cap state employee retiree health benefits and sharply raise fees for all sorts of state services in order to halt a long-term fiscal slide that is, in some ways, the worst in the nation.

That was the advice Monday from David M. Walker, a former Comptroller General of the United States and head of the Government Accountability Office under presidents Bill Clinton and George W. Bush.

Walker, who moved to Bridgeport three years ago — "I didn't realize it was ground zero for fiscal irresponsibility," he said — joined with Fred V. Carstensen, head of the Connecticut Center for Economic Analysis at UConn, in issuing a report on the state's grim fiscal health and economic competitiveness.

These days, Walker is a traveling evangelist for deep reforms to turn around the nation's long-term fiscal outlook, which, like Connecticut's, is lousy because we won't be able to afford to keep the promises we're making. As founder and CEO of the Comeback America Initiative, Walker — a likable guy with lots of powerful friends — is not out to make friends if it means pulling punches.

And one of those punches is capping payments for public employee retiree health, which most private companies have long since done.

"That's reality. That's what you're going to have to do," Walker told an audience at the Downtown Hartford Marriott. "Less than 15 percent of employers in America do anything at all for retiree health care."

By way of showing how rich Connecticut's health plan is, he added, "I know people that are current and past Congressmen that are still on Connecticut's plan. That's saying something."

Carstensen didn't join in calling for cuts to retiree benefits, but said it might be necessary to look at it. "I want to see what the specifics are. How much can we capture by changing the incentives," he said.

That's already happening. A $35 co-pay for emergency room visits, part of the 2011 agreement between Gov. Dannel P. Malloy and the state's union coalition, has cut those visits by 40 percent, Carstensen said.

Overall, the state has shrunk its health benefits liability from $31 billion to $17 billion, said Robert Rinker, executive director of the Connecticut State Employees Association, by aggressively bargaining with insurers, managing chronic disease care and setting up a fund in which employees hired after July 1, 2005 will pay 3 percent of wages, to be matched by the state after 2017.

Rinker wouldn't even concede that Walker's idea to cap benefits would even save taxpayers' money, let alone that it would fly politically.

"He's absolutely dead wrong, because then people do not get the care they need to get," said Rinker, a longtime member of the state's health care cost containment committee. "If people have to pay for chronic disease management, that will cost the plan a lot of money...keep them healthy... It's a completely ass-backward way of looking at health care."

Walker well knows he's grabbing the third rail of Connecticut politics, state employee health benefits. Asked whether it's fair to take away retirement benefits from people who worked for the state their whole careers, in some cases at lower salaries than they could have gotten elsewhere, he said, "We need to look at fairness broadly defined," including for the taxpayers.

Sweeping change is one thing, but what does all this say about cutting spending? Details aside, although we know the issue — high costs that support a high quality of life, but slow growth — we don't know the answers.

The report came on the same day when the Connecticut Business and Industry Association accelerated its spending-control campaign with a prominent ad (nearly a full page in The Courant) titled "Time to Change Direction."

The CBIA takeaway: State government spending has increased by 153 percent since 1992, while median household income has gone up by 59 percent and the state's population has risen by 9 percent. Again, we can quibble with the figures but the business group's point is simple -- cut spending now.

Neither Walker nor Carstensen likes that idea as the chief solution to Connecticut's $1.2 billion shortfall for the coming year. On the contrary, they talk about addressing wealth disparities and investing in infrastructure and other areas to make the state more competitive. "There's no way we can cut our way out of this," Carstensen said, repeating an old warning of his. "If we address this deficit through cuts, we will end up worse than we are."

Both sides have part of the truth here — there is no easy way to repath Connecticut to avoid the fiscal train-wreck that could happen. Most people agree that Malloy has made some good moves, including restoring payments to the pension fund and starting the change to a system called generally accepted accounting principles, or GAAP.

The trouble is baked into the demographics and into the long-term economic picture. Like companies that take on debt, states rely on growth to stay afloat, and Connecticut had added jobs as slowly as any state during the post-recession recoveries of the last three decades.

The picture is ugly, and Monday's report brought together a lot of numbers that we've seen already in one form or another, and some new ones. For example, the report said, Connecticut has $37,693 per taxpayer in unfunded liabilities, including long-term health, pension and bond debt obligations. Only New Jersey is close, among ten states in the report's comparison group.

Connecticut ranks near the top in state spending per dollar of output produced by its economy. And famously, Connecticut is tops in bond debt per capita — although, as noted by Ben Barnes, Malloy's budget czar, that's partly because Connecticut borrows money for the towns. In total state and local debt as a ratio of total income, we're in the middle of the pack.

Carstensen's mantra is that we don't do enough to collect and analyze data in order to make smart decisions, and that small changes in incentives can lead to big results. Walker delivered a sweeping view that called for "incentives...accountability...and transparency," in which he said, "We are truly on a burning platform and we must make transformational changes."

No one has all the answers, not these two moderates nor the unions on the left, nor the business lobby on the right. We can improve the picture, but my fear is that over the next half-century, we're managing the decline of an empire overwrought by costs and entitlements. Connecticut, as the richest state in the richest nation in history, is the leading edge — the scout trying to figure out how to stop an army of economic forces.

The good news: We are England, not Rome.