"Government economists project that health care spending in the United States will nearly double by 2016, accounting for nearly 20 cents out of every dollar that Americans spend.
This unsustainable spiral, and its associated impact on retirement benefits, represents a looming crisis for individuals, schools, and state and local governments that provide the services that citizens need, deserve and demand.
In recognition of this "train wreck waiting to happen," as it has been described, three of Kentucky's leading statewide organizations — the Kentucky Chamber of Commerce, the Kentucky League of Cities and the Prichard Committee for Academic Excellence — have organized the Coalition for Sustainable Benefits.
Their objective: to raise public awareness and advocate for a solution that will help Kentucky avoid a financial disaster.
The three groups represent different constituencies, but they share serious concerns, as noted in their commentaries below, about the negative impact of rising benefit costs on essential services.
A threat to basic services
By Dave Adkisson
GUEST COMMENTARY
The costs of retirement and health insurance benefits for public employees in Kentucky are reaching levels that are simply unsustainable. The bottom line is clear: Benefit costs are threatening basic services.
Kentucky's business community cares about this because we believe citizens deserve efficient government and that public sector benefits should reflect our broader economy. Researching this issue has revealed some interesting facts:
Public employers pay a greater share of health premiums than private employers.
State government's annual contributions for health insurance now exceed $1 billion.
Kentucky's pension plans are funded at levels below the national average, with benefit commitments that exceed assets by $12 billion.
Kentucky has made some changes to address these spiraling costs, including changes in retirement health coverage for new employees and moving to a self-insured health plan. Although the business community is encouraged, these efforts alone are not adequate to ensure sustainability. There is more work to be done to address the root causes of these problems before they become a crisis of unmanageable proportions.
We encourage policymakers to develop a solution that includes a thorough and deliberate review of all aspects of the problem at the state and local levels of government. In addition, a complete review of health benefits is in order, particularly as they compare to those provided in the private sector.
Every new dollar spent on the increasing cost of benefits for public workers means less funding will be available to improve schools, build roads and pay for fire and police protection.
Kentucky needs to act now to develop the long-term strategies needed to counter the threat that benefit costs represent to the basic services that its citizens must have.
Dave Adkisson is president and CEO of the Kentucky Chamber of Commerce.
Cities facing financial crisis
By Sylvia L. Lovely
GUEST COMMENTARY
Since September 11, 2001, police and fire personnel have practically become the face of our local governments, serving in hazardous situations every day. While citizens demand safety and cities want to pay fair salaries to these local heroes, skyrocketing increases in health insurance and retirement costs threaten to bankrupt our cities if we don't fix the system.
One incredible statistic foreshadows the looming catastrophe — premiums for full family health coverage in Kentucky have increased 71 percent since 2000.
The County Employee Retirement System (CERS), which provides retirement benefits to Kentucky city employees, is funded by contributions from local governments from local taxpayers. However, employer contribution rates and cost of living adjustments that must be paid into CERS are set by the state legislature, and local governments have no control over spiraling benefit costs.
Despite increased employer contribution rates, CERS' unfunded liabilities totaled more than $6.8 billion at the end of fiscal 2006, primarily as the result of rising health costs.
The impact is jarring. The city of Elizabethtown will have to pay almost $500,000 more in fiscal year 2008 than this year. Louisville Metro will pay almost $12 million more next year while the city of Covington will have to find over $1 million more — and that follows a half-million dollar increase this year.
To meet these obligations, cities are faced with reducing the number of employees and the services they provide. A Kentucky League of Cities survey found more than 40 percent of cities have already tapped surplus funds to cover increased benefit costs, and layoffs are already taking place and will increase.
Kentucky's cities compete nationally and internationally for talent and new private sector jobs. Cities have developed tourism and recreational facilities, and many provide incentives to attract jobs. These are the very services that face elimination if this expensive problem is not solved.
Sylvia Lovely is executive director and CEO of the Kentucky League of Cities.
Schools are at risk
By Robert F. Sexton
GUEST COMMENTARY
Rising health insurance and retirement costs are burning up huge amounts of the hard-earned investments that Kentucky needs to improve its schools and provide basic services that citizens need.
These cost increases have a direct, negative effect on education.
The Prichard Committee's concern about this problem increased significantly after the 2006 legislature appropriated record amounts for education, but funding for most education programs didn't increase. Our researchers set out to find out why.
Our findings pointed to one area: health insurance premiums and retirement costs. There are many ways to look at the numbers. They're all bad:
Between 1996 and 2008, health insurance and retirement took 50 percent of all the new money appropriated for education.
Between 1990 and 2005 health insurance and retirement, as a share of the education budget, jumped from 15 to 25 percent, where it remains.
From 1999 to 2005, increases in health insurance and retirement costs consumed all the other increases in education; total state education spending increased by $78 million while there were new costs of $119 million, adjusted for inflation, for health insurance and $63 million for retirement.
Our goal in raising this alarm is ensuring that Kentucky's retirement system is sustainable, adequately funded and capable of providing employee benefits over time. It is not, as one distraught teacher put it, about how we can "rob public servants of the only attractive benefit they receive." No one has proposed that current benefits be reduced.
Solutions aren't going to be easy to find. There are, however, things that need to be discussed. The current teaching salary system provides lower salaries at the beginning of a teacher's career and "back loads" them years later with generous benefits. That is not a good personnel policy for today's young labor force.
The tradition of passing the problem along to the next generation is wrong; it's time to face reality and find solutions.
Robert F. Sexton is the executive director of the Prichard Committee for Academic Excellence.