Memo To CA State Legislators: Cost Savings From OPEB Reform In California

Some of you have asked for an estimate of the savings California could realize from reforming OPEB (Other Post-Employment Benefits) subsidies of retired employee health insurance.

California pays 100% of the health insurance premium cost for retirees and 90% of the additional premium required for the enrollment of retirees’ family members. Colorado caps OPEB subsidies at $230 per month for retirees under the age of 65 and $115 per month for retirees 65 and over. Under Colorado’s approach, California could save $2.5 billion per year in cash, end the annual issuance of billions of new OPEB debt, and reduce $85 billion of existing OPEB debt nearly to zero. The State could save even more under Oregon’s approach, which caps subsidies at $60 per month and is closed to new employees.

If you’re rubbing your eyes in disbelief, stop. When the City of Glendale reformed its OPEB program in 2015 it obtained percentage savings of similar magnitudes. If you’re looking for an excuse not to reform California’s OPEB program, there isn’t one. Tweet all you want about heartlessness in Washington DC but don’t look in the mirror while you are considering cuts to adult dental care, MLK hospital, child care and CalWORKS rather than to subsidies for special interests. Every year you spend $500 million in cash and even more in new OPEB debt for Bargaining Unit 6 (CDCR) alone.

You don’t need LAO, DOF or anyone else to make this clear. Read your own CAFR and the truth will jump out at you. Cut our estimates in half and you’ll still save adult dental care, MLK Hospital, child care and more. You don’t need a weather vane to know which way the wind blows — and you don’t need a precise estimate to know you shouldn’t be supplying subsidies to special interests at the expense of programs and services.

Now is the time to reform OPEB and require the same at every city, college, university, school and agency. Unlike federal funds, the savings would be ongoing. Retired employees and their families would be protected by federal health insurance subsidies and Covered California’s new middle class subsidies. There is no excuse for not acting, and right now.

Govern For California supports lawmakers who legislate in the general interest.

Written by

Lecturer at Stanford University and president of Govern For California

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