State Employee Health Benefit Costs

By September 3, 2014 September 4th, 2014 Commentary

It is indisputable that over the last few decades government employees, especially at the state and local level, have used their political power to obtain compensation and benefits far in excess of what is comparably paid in the private sector.  This includes health benefits.  A Pew and MacArthur Foundation report sets out the gory details and explains what states are trying to do to control this rapidly-growing area of spending.   (Pew Report)   In 2013 states spent $30.8 billion for health coverage for about 2.7 employees.  The average premium per month per worker was $963 and the states paid 84% of that amount, much higher than private employers typically pay.  And the plans are incredibly rich, paying an average 92% of the covered person’s health costs, which would make them a “platinum” plan in the real world.  As an example, only 4% of state employees are in a high deductible plan, compared to over 20% of private employees.  There is variation across states, from an adjusted employee-only premium of $387 in South Dakota to $846 in Alaska, after adjusting for plan richness and other factors, but not adjusting for age, gender, and health status, or for cost of services.  To some extent, because of the richness of benefits and affirmative action programs, government employers have become a haven for people who have relatively poor health status, as government employees have much higher rates of most chronic diseases.

Another enormous benefit to state employees which largely does not exist in the private sector is rich coverage of health care after retirement.  Most state employees get lifetime coverage, and the state usually pays the same as when they were working.  The budgetary pressure from these benefits is enormous to the states and is a significant component of the impending crisis in state pension and retiree health costs.  Aside from the budgetary implications for the state, it is simply outrageous that state employees enjoy far better coverage than the taxpayers picking up the tab.  Their health benefit’s richness is not offset by lower wage compensation, in fact they are paid more.  And they basically can never be fired, no matter how incompetent they are or what behavior they engage in.  Because of the political bent of Pew and MacArthur, there is little direct comparison with health benefits in the private sector, although it is noted that they are much more generous.  It should be a rule that no government employee can get compensation or benefits of any type that are above the average for private employees doing the same kind of work.  That would be a form of fairness that makes sense.

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