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The problemIllinoisans are beginning to see the dangers of
another unfunded liability: free or subsidized
health care for retired state workers.
The state has liabilities of more than $100 bil-lion in health benets for state retirees during
the next 30 years, yet it has set aside nothing
to pay for them.1 These unfunded liabilities are
growing 2½ times faster than state revenues and,
if left unreformed, will work in tandem with ris-
ing pension costs to dramatically cut govern-
ment services. One of those services is health
care to the poor and disadvantaged.
In Illinois, three general groups of people re-
ceive free or subsidized health care:
• The state’s poor, both children and
adults;
• The disabled and the elderly; and
• Retired state employees, many who sit
on million dollar pensions.
The state simply cannot pay the health care costs
of all these groups, and certainly not with the
costs of the federal health reform, more com-
monly known as ObamaCare, on the horizon.
Generous health care coverage for retired state
employees competes with resources for the
steadily eroding services that Illinois’ poor re-
ceive under Medicaid. The state’s budget woes
and mismanagement of Medicaid already have
led to low reimbursement rates and long pay-
ment delays to doctors and hospitals, leaving the
state’s most vulnerable population with few op-
tions.2-7 They must wait much longer to receive
care, if they can get it at all.8-9 With nowhere left
to turn, Medicaid patients have no choice but
to seek nonurgent care from hospital emergency
rooms.10-11 The program’s mismanagement hascreated huge access barriers that only will wors-
en in the coming years as more unpaid bills pile
up and ObamaCare kicks in.12-13
Meanwhile, many state retirees contribute little
or nothing to their health insurance premiums.
In fact, for the state’s largest retiree health pro-
gram, the State Employee Group Insurance Pro-
gram, retirees only contribute 9 percent toward
their premiums. That’s a lot less than other states,
which require state retirees to pay six times thatamount.14 In the private sector, the vast majority
of retirees are not offered coverage at all, and
the few who are must pay the majority of their
insurance costs.15-16
Finally, to make matters worse, the state’s health
coverage policies incentivize early retirement of
state employees, signicantly driving up costs
for the state.
State politicians have a clear choice on the re-
form of retiree health care costs. If they failto act, they will continue to favor free Cadillac
coverage for well-off state retirees, while the
most vulnerable search for a doctor willing to
see them.17-18 The state’s prioritization of retir-
ees over core government services and the social
safety net already has hurt many. As the cost of
providing these generous benets continues to
climb, it only will get worse.
Jonathan Ingram is a Health Care Policy Analyst with the Illinois Policy Institute.
Diagnosis: Disaster
The $44 billion price tag of state retiree health insurance
H e a l t
h C a r e
B r i e f F e b r u a r y 2 8 ,
2 0 1 2
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Fortunately,
there is a
solution for
Illinois. The
solution
properly aligns state
retiree
benets in
Illinois with
those in other
states by
taking intoaccount a
retiree’s years
of service, age
at retirement
and ability to
pay.
and more state money will be redirected from
other core government services.
The state pays for the costs of these heath
care plans each year from that year’s revenues.
These costs are expected to rise an average of 4.5 percent a year, although this future growth
might be understated, as it is far below the his-
torical average. 20-21
Even so, it is almost two times faster than the
state’s expected tax revenue growth. Even as-
suming the modest 4.5 percent growth in re-
tiree health care costs, the total cost to tax-
payers for providing this insurance will exceed
$100 billion during the next 30 years.22-23 The
latest actuarial valuation for these programs
estimates it has an unfunded liability of almost
$44 billion, the amount the state should set
aside today in order to meet these obligations
in the future.24-25
Fortunately, there is a solution for Illinois. The
solution properly aligns state retiree benets in
Illinois with those in other states by taking into
account a retiree’s years of service, age at retire-
ment and ability to pay. It also reduces incentives
for early retirement by capping subsidies for fu-ture retirees, ensuring that those who choose to
retire several years early are not given special re-
wards.
The state’s three major insurance programs
Illinois administers three major health insur-
ance programs for retired state employees; the
State Employee Group Insurance Program, or
SEGIP; the Teachers Retirement Insurance Pro-
gram, or TRIP; and the College Insurance Pro-
gram, or CIP. Together, these three programs
provide health insurance coverage to more
than 180,000 retirees, dependents and surviving
spouses.19 As the costs of providing retirees with
this benet continue to climb, however, more
Program Enrollment Serves
State Employee GroupInsurance Program 110,862
Retired employees of state agencies, boards, commissions,universities and elected ofcials
Teachers RetirementInsurance Program
65,031 Retired employees of school districts
College Insurance Program 5,539 Retired employees of community colleges
Graphic 1. More than 180,000 people receive
state-provided retiree health insurance
Total retirees, dependents and surviving spouses with state-provided health insurance in 2009
Source: Illinois Policy Institute calculations.
Graphic 2. Retiree health insurance to cost taxpayers
more than $5 billion annually within 30 years
Annual employer costs for retiree health insurance, by program
Source: Illinois Policy Institute calculations.
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Page 3 of 17
Altogether
the state p
more than
90 percent
the costs fo
retirees’ S
Employee
Group
Insurance Program
coverage.
Separately, the state pays for TRIP and CIP in-
dividually through a combination of retiree pre-miums and payroll contributions from active
employees, local school districts or community
colleges and the state.29 In many communities,
the local school district pays the full teacher
share of TRIP as a benet, much as they pay the
teacher pension contributions.30
For comparison, Graphic 3 shows that other
states only cover 46 percent of the health care
premium costs, while Illinois’ three systems sub-
sidize signicantly more. 31 See Appendix A for
a breakdown of annual employer costs by pro-
gram and revenue components.
Who pays for state retirees’ health care?
The state nances each of these programs
through different means, but the vast majority is covered with state and local money (see Ap-
pendix A for the methodology used throughout
this report).
The state nances SEGIP through a combina-
tion of retiree premiums and state contributions.
Members who retired before 1998 pay no por-
tion of their premiums and, therefore, receive
free coverage. Members who retired later pay 5
percent less of the total premium for every year
of service.26-27 This means that employees who
worked for 20 years or more pay no portion of
their premiums. Altogether, the state pays more
than 90 percent of the costs for retirees’ SEGIP
coverage.28
Graphic 3. Taxpayers shoulder larger burden
in Illinois than in other states
Employer share of retiree health insurance costs, by program
Source: Illinois Policy Institute calculations.
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With little to
no money set
aside for these
future costs,
the actuarial
shortfall today is equal
to almost
$44 billion.
cent annually, more than twice the rate of Il-
linois’ tax revenues.
With little to no money set aside for these fu-
ture costs, the actuarial shortfall today is equal
to almost $44 billion.
Graphics 5, 6, and 7 (below, and page 5) show
the detail of each program’s money sources
and the increasing requirements on General
Funds sources.
State retiree health care costs
These programs will cost Illinois more than
$100 billion during the next 30 years. Because
the state has not designated money for these
three programs, they operate on a yearly pay-as-
you-go basis. This means that as retiree health
care costs rise faster than the state’s total rev-enues, they will squeeze out state spending on
other core services. As can be seen in Graphic 4,
these costs are expected to increase by 4.5 per-
State
retirement
insuranceprogram
Full
employer
cost over30 years
Unfunded
liability
Average
annual
projected
increasein cost
Projected
FY2013
taxpayercost
Projected
FY2041
taxpayercost
General
Revenue
Fund costin FY2041
SEGIP $62.1 $27.1* 3.7% $1.1 $2.8 $1.9
TRIP $37.3 $14.9 5.7% $0.5 $2.3 $0.9
CIP $4.7 $1.9 5.6% $0.1 $0.2 $0.1
Total¹ $104.1 $43.9 4.5% $1.6 $5.2 $2.9
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2009 2013 2017 2021 2025 2029 2033 2037 2041
M i l l i o n s
GeneralRevenueFund Otherstatefunds
Graphic 5. SEGIP coverage to cost taxpayers
almost $3 billion annually within 30 years
Excludes retiree contributions
Graphic 4. Current and projected costs of
providing health care programs ($ billions)
*For a breakdown of SEGIP’s unfunded liability by retirement system, see Appendix B¹Totals might not sum because of rounding
Source: Illinois Policy Institute calculations.
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It should b
clear that
the costs of
providing
these progr
grow, and
because no
money has
been set asto cover th
future cost
fewer state
resources w
be availab
to provide
for other core service
including t
state’s safe
net.
Graphic 6. TRIP coverage to cost taxpayers
more than $2 billion annually within 30 years
Excludes retiree contributions
$0
$500
$1,000
$1,500
$2,000
$2,500
2009 2013 2017 2021 2025 2029 2033 2037 2041
M i l l i o n s
GeneralRevenueFund Otherstateandlocalfunds
Graphic 7. CIP coverage to cost taxpayers
almost $250 million annually within 30 years
Excludes retiree contributions
$0
$50
$100
$150
$200
$250
2009 2013 2017 2021 2025 2029 2033 2037 2041
M i l l i o n s
GeneralRevenueFund Otherstateandlocalfunds
It should be clear that as the costs of providing these programs grow, and because no money has been
set aside to cover these future costs, fewer state resources will be available to provide for other core
services, including the state’s safety net. In order for Illinois to continue to provide for those most in
need, the state must reform these programs.
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There is no
single “silver
bullet” for
skyrocketing
retiree health
care costs.Instead, the
state will
need multiple
reforms that,
together,
ensure that
the cost of providing
these benets
does not
crowd out
other state
spending.
benet points and income brackets.
Because early retirees are the most
expensive to cover, this proposal
would save the state several billion
dollars during the next 30 years.
3. Ending retiree subsidies.
Private sector employees rarely are
offered retiree health insurance.
When they are offered coverage,
many have to pay the full cost of
their premiums. Because the state
already has increased the pension
“full benet” retirement age to
67 for newly hired employees, it
simply should end retiree subsidies
for new hires, as well. These new
employees will be Medicare-
eligible by the time they are able
to collect their full benets,
making the state’s supplemental
coverage largely unnecessary and
even further out of sync with the
private sector.
Yearly savings beginning in scal year 2013
are expected to equal $425 million when com-
pared with scal year 2012. Total ve-year sav-ings will be $2.7 billion when compared with
spending under the status quo retiree health
care plan. Savings in the longer term also will
rise as the number of early retirements cease
and as the number of new employees with no
benets increase.
The solution: Reform OPEB There is no single “silver bullet” for skyrocket-
ing retiree health care costs. Instead, the state
will need multiple reforms that, together, ensure
that the cost of providing these benets does
not crowd out other state spending. These re-
forms include:
1. Benchmarking benets to other
states.
By benchmarking retiree
contributions to the average
contributions retirees make in other
states, Illinois can save more than
$40 billion in the next 30 years.32
In addition, beginning in scal year
2013, the state should determine
premium subsidies on a sliding scale
according to a combination of a
retiree’s ability to pay, years of service
and retirement age. This would
reward current retirees for lifelong
service, discourage early retirement
and protect low-income retirees.
2. Capping retiree subsidies.
Many employees retire before
reaching retirement age. The stateshould not be rewarding these retirees
for choosing to retire early. Beginning
in scal year 2013, the state should
cap subsidies for all new retirees
at the same level the state pays for
Medicare-eligible retirees in the same
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By having
retirees
contribute
as much
toward the
cost of the
health care
as other st
governmenrequire, th
state can s
more than
$40 billio
during the
next 30 ye
In SEGIP, the state subsidizes coverage based
on service only. Members who retired before
1998 pay no portion of their premiums and,
therefore, receive free coverage. Members who
retired later pay 5 percent less of the total premi-
um for every year of service.37-38 This means that
employees who worked for 20 years or more pay no portion of their premiums. Altogether, the
state pays more than 90 percent of the costs for
retirees’ SEGIP coverage.39
The state must look beyond years of service in
calculating retiree contributions. If it fails to do
so, the unsustainable path will lead to less mon-
ey available for core government programs and
services.
In general, those who retire later in life cost the
state much less than those who retire earlier.
Those who retire later in life will, on average,
Benchmarking benets to other states
Illinois can save a substantial sum by raising state
retiree contribution levels to national averages.
By having retirees contribute as much toward
the cost of their health care as other state gov-
ernments require, the state can save more than
$40 billion during the next 30 years.33
In 2041,the annual savings to taxpayers would be almost
$2 billion in that year alone.34 That $40 billion
could be directed toward solving the coming cri-
sis in Medicaid.35-36
These savings also would reduce the state’s un-
funded liability of $44 billion by $18 billion, or
40 percent. While other reforms are necessary to
reduce the remaining $27 billion unfunded liabil-
ity, increasing retiree contributions is an impor-
tant rst step in getting the state’s scal house in
order and improving its credit.
Graphic 8. Illinois taxpayers can save $40 billion by
increasing retiree contributions to national average
Annual employer costs for retiree health insurance, by program, with and without reform
Source: Illinois Policy Institute calculations.
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While
the state
should seek
to protect
low-income
retirees from rapidly rising
health care
costs, the fact
of the matter
s that most
retirees are
earning more n retirement
than the
average
taxpayer’s
household
ncome.
The state also should base these generous
subsidies on a retiree’s ability to pay. While the
state may wish to protect low-income retirees
from rapidly rising health care costs, the fact
of the matter is that most retirees are earn-
ing more in retirement than the average tax-
payer’s household income.42-45
Those who areable to pay for their own health care should
be required to do so. The state no longer can
afford to provide Cadillac coverage to upper
class retirees at the expense of providing core
services to the poor and the public at large.
The state should determine premium subsi-
dies on a sliding scale according to a combina-
tion of a retiree’s ability to pay, years of service
and retirement age. The formula in Graphic 8
would reduce the state’s contribution from 91
percent to 51 percent.46 If matched in all three
insurance programs, the state would save $34
billion during the next 30 years.47 This formula
could be modied slightly to reduce the state’s
contribution to the national average of 46 per-
cent, further controlling the crowd-out effect
that retiree health insurance has on other pro-
grams.
collect fewer benets, simply because their life
expectancy at the time of retirement is shorter.
When comparing early retirees with those who
retired at 65, the disparity in cost grows. This
largely is because Medicare bears the cost for
much of the care older retirees receive, while the
state must bear the full burden for early retirees.By not accounting for these important factors,
the system punishes the lifelong servant wish-
ing to work until retirement age, while rewarding
those who choose to retire early.
A simple way to take into account retirement age
and years of service is by calculating “benet
points.” The formula for these points is simple:
the number of years of service plus the age at
which the retiree begins to collect benets. As
the benet points scale increases, premium sub-
sidies increase. This new model would reward
lifelong employees for their service and encour-
age people to wait until retirement age before
starting to collect benets.
According to estimates provided to the Com-
mission on Government Forecasting and Ac-
countability, this formula could reduce the state’s
contribution in SEGIP from 91 percent to 55
percent.40 If matched in all three insurance pro-
grams, the state would save $28 billion during
the next 30 years.41
Household
income
Benet points
0 - 78 79 -85 86 - 92 93 +
$0 - $30K 50% 35% 20% 5%
$30K - $60K 60% 45% 30% 15%
$60K - $100K 70% 55% 40% 25%
$100K - $200K 80% 65% 50% 35%
$200K - $250K 90% 75% 60% 30%
$250K + 100% 100% 100% 85%
Graphic 9. Illinois taxpayers can save billions
while still rewarding long service, discouraging early
retirement and protecting low-income retirees
Suggested retiree SEGIP contribution by benet points and ability to pay
BENEFIT POINTS = AGE AT RETIREMENT + YEARS OF SERVICE
Source: Mercer.
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The cost fo
these gener
benets ha
risen by 7.
percent a y
for the pas
decade, wh
revenue on
has grown2.8 percen
Generous health insurance subsidies frequent-
ly lead a greater number of workers to retire
earlier than average and earlier than they might
otherwise choose to retire.55 While the benet
points model will discourage early retirement
to some degree, it is not sufcient to constrainoverall cost growth. The state should discourage
this costly early retirement by capping its sub-
sidies at Medicare-eligible levels. These reforms
would have the added benet of reducing costs
by encouraging retirees to move from the most
expensive health insurance plans into less expen-
sive plans.
There is no reason why taxpayers should be on
the hook for the extra costs associated with state
workers choosing to retire early. Instead, the
state should set aside a dened contribution for
all retirees equal to the subsidy given to Medicare
retirees. If state workers choose to retire before
they are eligible for Medicare, they should be
required to pay for the enormous difference in
these costs. If all the state did was cap subsidies
at the Medicare level, it could save billions of
Capping retiree subsidies for new retirees
Although requiring retirees to contribute toward
the cost of their health insurance achieves signif-
icant savings for taxpayers, it does not substan-
tially slow this growth rate going forward. The
cost for these generous benets has risen by 7.1
percent a year for the past decade, while revenueonly has grown by 2.8 percent.48-50 As these costs
continue to grow far faster than revenues, more
and more valuable government services will be
crowded out of the budget.
In order to control this growth rate, Illinois must
stop subsidizing employees who retire early, as
these early retirees are the most expensive to
provide with coverage. While these retirees rep-
resent only a third of all state retirees, their cov-
erage accounts for almost 60 percent of retiree
health care costs.51 During the past decade, the
cost for early retirees’ health insurance has been
more than twice the cost for those who retire at
65.52 In scal year 2011, non-Medicare retirees
cost $11,585 to cover, compared with $4,530 for
retirees on Medicare.53 Both groups have seen
their costs rise by more than 7 percent a year.54
Graphic 10. Early retirees cost much
more to insure than normal retirees
Average cost per retiree by Medicare status in scal year 2011
Source: Illinois Policy Institute calculations.
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Without
reform,
Illinois
taxpayers
will pay more
than $100billion during
the next 30
years, largely
from general
revenues,
to provide
health nsurance to
state retirees.
cap these subsidies for all new retirees at Medi-
care levels and stop rewarding employees for
retiring early. Because the state has increased
the retirement age to 67 for new employees,
it should end retiree subsidies for these new
hires as well, as they will have Medicare cover-
age by the time they are able to retire.
Yearly savings beginning in scal year 2013
are expected to equal $425 million when com-
pared with scal year 2012. Total ve-year sav-
ings will be $2.7 billion when compared with
spending under the status quo retiree health
care plan. Savings in the longer term will rise
as the number of early retirements cease and
as the number of new employees with no ben-
ets increase.
Even with these reforms, retired state work-
ers will have benets virtually unheard of in
the private sector. The vast majority of private
sector retirees are not offered retiree health in-
surance at all. When they are offered coverage,
they generally pay all or most of the cost of
their premiums.
Retiree health benets are not protected by
the state constitution.61-63 Lawmakers can
change them in order to ensure that the state
can provide assistance to those most vulner-able. The state’s prioritization of retirees over
those most in need has hurt many. If lawmak-
ers care about ensuring that they can provide
health care for the most vulnerable, they must
reform these obligations now.
dollars into the future. However, by implement-
ing capped subsidies and adjusting the subsidy
for years of service, retirement age and ability to
pay, the state nally could be able to bend down
the cost curve. It also could consider indexing
the capped subsidies to an ination-adjusted
formula for future certainty.
Ending retiree subsidies for new employees
Private sector employees rarely are offered re-
tiree health insurance. Only a quarter of large
employers offer health insurance coverage to re-
tirees.56 Small employers, which employ 80 per-
cent of the labor force, only offer coverage to
their retirees 4 percent of the time.57 In all, only
8 percent of all retirees are offered health insur-
ance coverage through their former employers.58
When they are offered coverage at all, many have
to pay the full cost of their premiums.59
The state already has increased the pension “full
benet” retirement age to 67 for newly hired
employees.60 These employees will be eligible for
Medicare by the time they are eligible for full re-
tirement, making the state’s supplemental cover-
age largely unnecessary. If they wish to keep this
coverage, they should be responsible for the en-
tirety of their premiums. This ultimately would
eliminate the state’s future liabilities, showing the
light at the end of the tunnel as the state paysdown the obligations already incurred.
Conclusion Without reform, Illinois taxpayers will pay more
than $100 billion during the next 30 years, largely
from general revenues, to provide health insur-
ance to state retirees. Lawmakers will sink bil-
lions of dollars into providing Cadillac coverage
for well-off retirees instead of protecting the
state’s most vulnerable.
Illinois has no time to waste. It should follow the lead of other states and require retirees in
Illinois to contribute toward the cost of their
health insurance. By simply having Illinois re-
tirees contribute the same share that retirees in
other states contribute, taxpayers will save more
than $40 billion. Beginning next scal year, the
state should determine these premium subsidies
on a sliding scale according to a combination of
a retiree’s ability to pay, years of service and re-
tirement age. Moving forward, the state should
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Page 11 of 17
Appendix A
Methodology
To calculate total employer costs, this report uses employer cost projections provided by Gabriel, Roeder, Smith & Company in
its 2009 GASB No. 43 and No. 45 actuarial valuations for SEGIP, TRIP and CIP. These valuations were prepared for the De-
partment of Healthcare and Family Services and published by the Commission on Government Forecasting and Accountability
To calculate the share of employer costs by revenue source, this report uses historical cost and program revenue data provided
to the Institute by the Department of Healthcare and Family Services. The report uses the 10-year average share for each rev
enue source to distribute the employer cost projections among the different sources of revenue. Where a portion of the costs i
unfunded, this report allocates it to general revenue funds.
To calculate the share of total costs by revenue source, this report uses historical cost and program revenue data provided to
the Institute by the Department of Healthcare and Family Services. Because SEGIP covers current employees and retirees, and
because revenue sources are not allocated between the two classes, this report also uses a study prepared for the Commission on
Government Forecasting and Accountability by Mercer Health & Benets LLC to determine the retiree share of costs within
SEGIP.
To calculate total savings by benchmarking retiree contributions to average retiree contributions in other states, this report uses
contribution data from the Mercer Health & Benets LLC study. This report projects the savings in employer costs from shifting
from the 10-year average of retiree contributions to the benchmarked contributions.
Graphic 11. Share of annual employer cost for SEGIP
coverage, by revenue component, for fiscal years 2002-11
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average
General Revenue Fund 69.7% 71.9% 74.2% 69.7% 70.0% 69.0% 68.0% 67.7% 68.4% 60.6% 68.9%
Road Fund 8.6% 8.5% 7.7% 8.9% 8.3% 8.2% 8.5% 8.9% 9.0% 11.0% 8.7%
Agencyreimbursements
20.2% 18.5% 16.9% 20.2% 20.3% 18.7% 19.3% 19.2% 18.3% 22.6% 19.4%
Other funds 1.5% 1.1% 1.2% 1.3% 1.4% 4.1% 4.2% 4.2% 4.4% 5.9% 2.9%
Source: Illinois Policy Institute calculations.
Graphic 12. Share of annual employer cost for retiree TRIP
coverage, by revenue component, for fiscal years 2002-11
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average
General Revenue Fund 48.3% 42.5% 42.2% 40.9% 39.9% 33.9% 30.2% 30.5% 29.7% 28.6% 36.7%
School districts 14.1% 23.6% 21.5% 20.7% 25.3% 23.6% 25.0% 24.6% 24.0% 21.1% 22.4%
Active employees 36.0% 31.8% 34.0% 36.8% 33.7% 31.4% 33.3% 32.8% 32.0% 28.2% 33.0%
Other funds 1.6% 2.1% 2.3% 1.6% 1.1% 11.1% 10.2% 9.1% 9.1% 9.0% 5.7%
Unfunded 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.3% 3.0% 5.3% 13.1% 2.3%
Source: Illinois Policy Institute calculations.
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Graphic 13. Share of annual employer cost for retiree CIP
coverage, by revenue component, for fiscal years 2002-11
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Average
General
Revenue Fund31.1% 30.7% 28.6% 19.6% 25.5% 25.6% 29.1% 20.6% 17.2% 16.6% 24.5%
Communitycolleges
31.5% 32.1% 29.8% 21.8% 23.5% 24.5% 23.4% 18.9% 17.1% 16.6% 23.9%
Activeemployees
31.6% 32.1% 29.8% 21.8% 23.5% 24.5% 23.4% 18.9% 17.1% 16.6% 23.9%
Other funds 5.8% 5.2% 4.8% 5.0% 7.1% 21.8% 13.1% 10.7% 13.7% 13.2% 10.0%
Unfunded 0.0% 0.0% 6.9% 31.9% 20.4% 3.5% 10.9% 30.9% 35.0% 37.0% 17.7%
Source: Illinois Policy Institute calculations.
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Appendix B
Graphic 14. SERS and SURS make up majority of SEGIP costs
Annual employer cost for retiree SEGIP coverage, by retirement system
Source: Illinois Policy Institute calculations.
Members of ve retirement systems receive retiree health insurance through SEGIP. Members of the State Employees’ Retire
ment System, SERS, make up the largest share of those costs, with an unfunded liability of $16.5 billion. The next largest share
belongs to members of the State Universities Retirement System, SURS, which has an unfunded liability of $9.9 billion.
Members of the remaining three retirement systems make up a much smaller percentage of the overall costs. Members of the
Teachers’ Retirement System, TRS, have an unfunded liability of $414 million; members of the Judges’ Retirement System, JRS
have an unfunded liability of $266 million; and members of the General Assembly Retirement System, GARS, have an unfunded
liability of $82 million.64
Graphic 15. SEGIP unfunded liabilities
total more than $27 billion
SEGIP unfunded liabilities, by retirement system
SERS SURS TRS JRS GARS All systems
$16.5 billion $9.9 billion $414 million $266 million $82 million $27.1 billion
Source: GASB No. 45 actuarial valuations for SEGIP.
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denied an appointment for urgent follow-up care, even at safety
net clinics. See, e.g., Brent R. Asplin et al., “Insurance status and access to urgent ambulatory care follow-up appointments,”
Journal of the American Medical Association 294(10): 1248-
54 (2005), http://jama.ama-assn.org/content/294/10/1248.
10 Medicaid patients, on average, use emergency rooms twice
as often as privately insured and uninsured patients. See, e.g., National Center for Health Statistics, “Health, United States,2010: With special feature on death and dying,” Centers for
Disease Control and Prevention (2011), http://www.cdc.gov/nchs/data/hus/hus10.pdf.
11 Between 1997 and 2007, per-capita emergency room use
increased for Medicaid patients and decreased for uninsured and privately insured patients. Emergency room use for preventable
conditions was much higher for Medicaid patients than privately
insured and uninsured patients. See, e.g., Ning Tang et al.,“Trends and characteristics of US emergency department visits,
1997-2007,” Journal of the American Medical Association 304(6): 664-70 (2010), http://jama.ama-assn.org/
content/304/6/664.
12 Illinois will need to appropriate $3.1 billion more in scal year 2013 than in 2012 just to keep a record six-month
backlog and $2.4 billion in unpaid bills. Without reform or
additional appropriations, the state’s Medicaid program will be almost $5 billion in debt to hospitals and doctors. See, e.g.,
Jonathan Ingram, “Medicaid FAIL: Why cutting appropriations doesn’t control costs,” Illinois Policy Institute (2011), http://
illinoispolicy.org/uploads/les/MedicaidFAIL.pdf.
13 Illinois can expect to pay another $1.4 billion from state funds on Medicaid the rst year that ObamaCare’s massive
expansion of Medicaid kicks in. See, e.g., Jonathan Ingram,
“Overloaded: One in three Illinoisans on Medicaid by 2019?” Illinois Policy Institute (2011), http://illinoispolicy.org/
uploads/les/overloaded10-20.pdf.
14 Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and
Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCo
ntributions.pdf.
15 About 80 percent of the labor force work for employers with fewer than 500 employees. Only 4 percent of these employers
offer coverage. About 20 percent of the labor force work for large
employers. Only 25 percent of these employers offer coverage.See, e.g., Mercer Health & Benets LLC, “Retiree Healthcare
Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/
cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCo
ntributions.pdf.
16 The average retiree contribution rate for large employers is
54 percent. See, e.g., Mercer Health & Benets LLC, “Retiree
Healthcare Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/
commission/cgfa2006/Upload/2011-MAY-17MercerRetireeH ealthcareContributions.pdf.
Endnotes1 Author’s calculations based upon 2009 GASB No. 43 and
No. 45 reporting of total members by status for SEGIP, TRIP and CIP.
2 Only six states have lower Medicaid reimbursement fees. For
primary physicians, these fees only are 57 percent of the already-
low Medicare r eimbursement fees. See, e.g., Stephen Zuckerman et al., “Trends in Medicaid physician fees, 2003–2008,” Health
Affairs 28(3): 510-19 (2009), http://content.healthaffairs.org/
content/28/3/w510.full.html.
3 The state’s long payment delays and low reimbursement rates
discourage doctors from accepting Medicaid patients. See, e.g.,Peter J. Cunningham & Ann S. O’Malley, “Do reimbursement
delays discourage Medicaid participation by physicians?” Health Affairs 28(1): 17-28 (2008), http://content.healthaffairs.org/
content/28/1/w17.full.html.
4 Medicaid patients are six times more likely than privately insured patients to be denied an appointment with a specialist.
When they can get an appointment, they must wait weeks or months
longer before seeing a doctor. See, e.g., Joanna Bisgaier & Karin V. Rhodes, “Auditing access to specialty care for children with
public insurance,” New England Journal of Medicine 362(24): 2324-33 (2011), http://www.nejm.org/doi/full/10.1056/
NEJMsa1013285.
5 Medicaid patients are more likely than the uninsured to be denied an appointment for urgent follow-up care, even at safety net
clinics. See, e.g., Brent R. Asplin et al., “Insurance status and access to urgent ambulatory care follow-up appointments,” Journal of the
American Medical Association 294(10): 1248-54 (2005), http://
jama.ama-assn.org/content/294/10/1248.
6 Medicaid patients, on average, use emergency rooms twice as often as privately insured and uninsured patients. See, e.g., National
Center for Health Statistics, “Health, United States, 2010: With special feature on death and dying,” Centers for Disease Control
and Prevention (2011), http://www.cdc.gov/nchs/data/hus/hus10.pdf.
7 Between 1997 and 2007, per-capita emergency room use
increased for Medicaid patients and decreased for uninsured and
privately insured patients. Emergency room use for preventable conditions was much higher for Medicaid patients than privately
insured and uninsured patients. See, e.g., Ning Tang et al., “Trends and characteristics of US emergency department visits, 1997-
2007,” Journal of the American Medical Association 304(6): 664-70 (2010), http://jama.ama-assn.org/content/304/6/664.
8 Medicaid patients are six times more likely than privately
insured patients to be denied an appointment with a specialist.When they can get an appointment, they must wait weeks or months
longer before seeing a doctor. See, e.g., Joanna Bisgaier & Karin
V. Rhodes, “Auditing access to specialty care for children with public insurance,” New England Journal of Medicine 362(24):
2324-33 (2011), http://www.nejm.org/doi/full/10.1056/ NEJMsa1013285.
9 Medicaid patients are more likely than the uninsured to be
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ributions.pdf.
29 Gabriel Roeder Smith & Company, “Teachers Retirement
Insurance Program: GASB No. 43 actuarial valuation report,” Commission on Government Forecasting and Accountability
(2009), http://www.ilga.gov/commission/cgfa2006/Upload/FY2009TRIPGASBvaluation.pdf.
30 Author’s review of hundreds of school district collective
bargaining agreements. School districts pick up all or some of a
teacher’s pension contributions in 84 percent of school districts. See,e.g., Ted Dabrowski & Michael Wille, “Teachers’ pensions: Who’s
really paying?: Many teachers contribute nothing; taxpayers shoulder burden,” Illinois Policy Institute (2011), http://illinoispolicy.org/
uploads/les/teacherpensions10-13.pdf.
31 About 80 percent of the labor force work for employers with fewer than 500 employees. These small employers rarely offer
this coverage. About 20 percent of the labor force work for large employers. Only 25 percent of those large employers offer coverage.
When coverage is offered, retirees must pay more than half of the
cost of their premiums. See, e.g., Mercer Health & Benets LLC,“Retiree Healthcare Contributions,” Commission on Government
Forecasting and Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHeal
thcareContributions.pdf.
32 Author’s calculations based upon 2009 GASB No. 43and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for
scal years 2012-41, historical trends in revenue component shares
for scal years 2002-11, and benchmarked retiree contributions.Figures assume a current retiree contribution trend of 9.1 percent
for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP.Figures also assume a benchmarked retiree contribution of 54
percent.
33 Author’s calculations based upon 2009 GASB No. 43and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for
scal years 2012-41, historical trends in revenue component shares
for scal years 2002-11, and benchmarked retiree contributions.Figures assume a current retiree contribution trend of 9.1 percent
for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP.Figures also assume a benchmarked retiree contribution of 54
percent.
34 Author’s calculations based upon 2009 GASB No. 43and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for
scal year 2041, historical trends in revenue component shares for
scal years 2002-11, and benchmarked retiree contributions.
35 Medicaid underfunding has left the state with $2.4 billion in
unpaid bills. Without reform, these unpaid bills likely will grow to
almost $5 billion by the end of scal year 2013. See, e.g., Jonathan Ingram, “Medicaid FAIL: Why cutting appropriations doesn’t
control costs,” Illinois Policy Institute (2011), http://illinoispolicy.org/uploads/les/MedicaidFAIL.pdf.
36 ObamaCare’s massive expansion of Medicaid will
cost the state more than $62.8 billion by 2041. See, e.g., Jagadeesh Gokhale, “The new health care law’s effect on state
Medicaid spending: A study of the ve most populous states,”
Cato Institute (2011), http://www.cato.org/pubs/wtpapers/
17 In general, state-provided health insurance benets for
employees and retirees are far more generous than the benets provided in the private sector. See, e.g., Josh Barro, “Cadillac
coverage: The high cost of public employee health benets,” Manhattan Institute (2011), http://www.manhattan-institute.org/
pdf/cr_65.pdf.
18 About 80 percent of the labor force work for employers with fewer than 500 employees. These small employers rarely offer retiree
coverage at all. About 20 percent of the labor force work for large
employers. Only 25 percent of those large employers offer coverage.When coverage is offered, retirees must pay more than half of the
cost of their premiums. See, e.g., Mercer Health & Benets LLC,“Retiree Healthcare Contributions,” Commission on Government
Forecasting and Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHeal
thcareContributions.pdf.
19 Author’s calculations based upon 2009 GASB No. 43 and
No. 45 reporting of total members by status for SEGIP, TRIP and CIP.
20 Author’s calculations based upon 2009 GASB No. 43 and
No. 45 actuarial valuations for SEGIP, TRIP and CIP for scal years 2012-41.
21 This is substantially below the historical average of 7.1
percent a year.
22 Author’s calculations based upon 2009 GASB No. 43 and
No. 45 actuarial valuations for SEGIP, TRIP and CIP for scal
years 2012-41.
23 The total cost to taxpayers represents the total employer cost:
total liabilities less retiree contributions. While a portion of these costs is paid by payroll deductions from active employees in TRIP and CIP, these deductions often are picked up by local school districts
and community colleges.
24 Author’s calculations based upon 2009 GASB No. 43 and No. 45 actuarial valuations for SEGIP, TRIP and CIP.
25 GASB No. 43 and No. 45 actuarial valuations were
required for scal year 2011, but have not been completed as of the date of this publication.
26 Members of TRS and SURS receive the state contribution
starting at the fth year of service. Members of SERS receive the
state contribution starting at the eighth year of service. Members of GARS receive the state contribution starting at the fourth year of
service. Members of JRS receive the state contribution starting at the sixth year of service.
27 State Employees Group Insurance Act, 5 ILCS
375/10 (2011), http://www.ilga.gov/legislation/ilcs/documents/000503750K10.htm.
28 Mercer Health & Benets LLC, “Retiree healthcare
contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/
cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont
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Accountability (2011), http://www.ilga.gov/commission/
cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContributions.pdf.
47 Author’s calculations based upon 2009 GASB No. 43
and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for scal years 2012-41, historical trends in revenue component
shares for scal years 2002-11, and benchmarked retiree contributions. Figures assume a current retiree contribution trend of 9.1 percent for SEGIP, 40.9 percent for TRIP and 38.4
percent for CIP. Figures also assume a benchmarked retiree contribution of 45 percent.
48 Author’s calculations based upon historical GRF
expenditures for SEGIP, TRIP and CIP.
49 Author’s calculations based upon historical revenue growth for scal years 2002-10, indexed from scal year 2002, as
reported by the National Association of State Budget Ofcers.See, e.g., Brian Sigritz et al., “State expenditure r eport:
Examining scal 2009-2011 state spending,” National
Association of State Budget Ofcers (2011), http://nasbo.org/LinkClick.aspx?leticket=C3LJlSFxbdo%3d&tabid=79.
50 Author’s calculations based upon historical state-source
general revenue growth for scal years 2002-10, indexed from scal year 2002, as reported by the Commission on Government
Forecasting and Accountability. See, e.g., Dan R. Long, “FY 2012 economic forecast and revenue estimate and FY 2011
revenue update,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/
cgfa2006/Upload/FY12econforecastrevestimate.pdf.
51 Author’s calculations based upon costs and enrollment gures for scal year 2011 in SEGIP, TRIP and CIP for
Medicare and non-Medicare retirees.
52 Author’s calculations based upon historical trends in per-member costs in TRIP and CIP for scal years 2002-11
for Medicare and non-Medicare retirees. HFS ofcials could not provide the 10-year historical data for per-member costs
in SEGIP for Medicare and non-Medicare retirees. In scal
year 2011, the cost gap between Medicare and non-Medicare retirees was slightly larger in SEGIP than in TRIP or CIP.
Accordingly, it is likely that SEGIP saw similar growth rates for Medicare and non-Medicare retirees.
53 Author’s calculations based upon per-member costs in
SEGIP, TRIP and CIP for scal year 2011, for Medicare and non-Medicare retirees.
54 Author’s calculations based upon historical trends in per-
member costs in TRIP and CIP for scal years 2002-11 for Medicare and non-Medicare retirees, indexed at 2002 levels.
55 Steven Nyce et al., “Does Retiree Health Insurance
Encourage Early Retirement?” National Bureau of Economic Research (2011), http://www.nber.org/papers/w17703.
56 About 25 percent of employers with 500 or more
employees offer health insurance coverage to pre-Medicare-eligible
StateMedicaidSpendingWP.pdf.
37 Members of TRS and SURS receive the state contribution
starting at the fth year of service. Members of SERS receive the state contribution starting at the eighth year of service. Members of
GARS receive the state contribution starting at the fourth year of service. Members of JRS receive the state contribution starting at the
sixth year of service.
38 State Employees Group Insurance Act, 5 ILCS
375/10 (2011), http://www.ilga.gov/legislation/ilcs/documents/000503750K10.htm.
39 Mercer Health & Benets LLC, “Retiree healthcare
contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/
cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont ributions.pdf.
40 Mercer Health & Benets LLC, “Retiree Healthcare
Contributions,” Commission on Government Forecasting and
Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareContri
butions.pdf.
41 Author’s calculations based upon 2009 GASB No. 43
and No. 45 actuarial valuations of SEGIP, TRIP and CIP, for
scal years 2012-41, historical trends in revenue component shares for scal years 2002-11, and benchmarked retiree contributions.
Figures assume a current retiree contribution trend of 9.1 percent for SEGIP, 40.9 percent for TRIP and 38.4 percent for CIP.
Figures also assume a benchmarked retiree contribution of 45
percent.
42 The average rst-year pension for TRS members who retired
in 2010 with 30 years of credible service was $65,109. See, e.g.,
Kristina Rasmussen, “Average $30,000 pension?: Pensions may be larger than they appear,” Illinois Policy Institute (2011), http://
illinoispolicy.org/uploads/les/FactFinderPensions.pdf.
43 The average rst-year pension for SURS members whoretired in 2010 with 30 years of credible service was $68,203. See,
e.g., Kristina Rasmussen, “Average $30,000 pension?: Pensions may be larger than they appear,” Illinois Policy Institute (2011),
http://illinoispolicy.org/uploads/les/FactFinderPensions.pdf.
44 About 54 percent of retirees with SEGIP coverage have household incomes greater than $60,000. See, e.g., Mercer Health
& Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17Merc
erRetireeHealthcareContributions.pdf.
45 The median household income in Illinois is $50,761. See, e.g.,U.S. Census Bureau, “Median household income by state: 1984
to 2010,”Current Population Survey: 2010 Annual Social and Economic Supplement, http://www.census.gov/hhes/www/income/
data/historical/household/2010/H08_2010.xls.
46 Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and
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Page 17 of 17
retires, while 19 percent offer health insurance coverage to Medicare-
eligible retirees. See, e.g., Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting
and Accountability (2011), http://www.ilga.gov/commission/
cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont ributions.pdf.
57 About 4 percent of employers with 10 to 499 employees offer health insurance coverage both to pr e-Medicare-eligible retirees
and Medicare-eligible retirees. See, e.g., Mercer Health & Benets
LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and Accountability (2011), http://www.
ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRet
ireeHealthcareContributions.pdf.
58 Author’s calculations based upon Mercer reports of offer rates
by small and large employers and share of labor force by small and
large employers.
59 One-third of large employers that offer retiree health
insurance require the retiree to pay the entire premium. See,
e.g., Mercer Health & Benets LLC, “Retiree Healthcare Contributions,” Commission on Government Forecasting and
Accountability (2011), http://www.ilga.gov/commission/cgfa2006/Upload/2011-MAY-17MercerRetireeHealthcareCont
ributions.pdf.
60 Illinois Pension Code, 40 ILCS 5/1-160 (2012), http://www.ilga.gov/legislation/ilcs/documents/004000050K1-160.htm.
61 Illinois law specically states that TRIP benets are not
protected under the pension clause of the state constitution. See, e.g.,5 ILCS 375/6.5(h) (2012).
62Illinois law specically states that CIP benets are not protected under the pension clause of the state constitution. See, e.g.,
5 ILCS 375/6.9(h) (2012).
63 Retiree health insurance is unprotected by the New York
Constitution’s pension clause, which was the model for the Illinois Constitution’s pension clause. See, e.g., Lippman vs. Board of
Education of the Sewanhaka Central High School District, 66
N.Y. 2d 313 (1985).
64 Gabriel Roeder Smith & Company, “Illinois State
Employees Group Insurance Program: GASB No. 45 actuarial valuation report,” Commission on Government Forecasting
and Accountability(2009), http://www.ilga.gov/commission/
cgfa2006/Upload/FY2009StateGASBvaluation.pdf.
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