Controller Cohen Announces State Retiree Health Care Liability Increases to $85.18 Billion

SACRAMENTO - State Controller Malia M. Cohen today published a report showing the state's net liability for retiree health and dental benefits - also known as other-post employment benefits (OPEB) - increased to $85.18 billion. The liability represents the present-day cost to provide health and dental benefits to state retirees and their dependents earned as of June 30, 2023. The prior year's net OPEB liability was $82.41 billion.

California's net OPEB liability increased by $2.77 billion since the last valuation. In comparison, the net OPEB liability decreased by $13.10 billion from the end of fiscal year 2020-21 to the end of fiscal year 2021-22 and increased by $0.32 billion from the end of fiscal year 2019-20 to the end of fiscal year 2020-21.

Health care claims experience, plan design and trend rates, demographic experience, changes to the blended discount rate and updates to OPEB-related assumptions affected the total OPEB liability. A significant driver behind the total OPEB liability increase includes changes in the health care trend rate assumptions to reflect the potential impact of the Inflation Reduction Act on Medicare prescription drug benefits. This updated trend rate assumption increased the total OPEB liability by $2.82 billion. The blended discount rate is based on the 20-year municipal bond index which increased from 3.69 percent at the end of fiscal year 2021-22 to 3.86 percent at the end of fiscal year 2022-23. The change to the blended discount rate decreased the total OPEB liability by $2.13 billion.

"Despite the year-over increase in the state's liability for retiree health care, California continues to make meaningful progress toward full funding of these promised benefits by 2046," said Controller Cohen, the state's chief fiscal officer and board member of CalPERS and CalSTRS. "Thanks to collective bargaining and budget agreements, our prefunding efforts will use investment income to significantly alleviate the burden that employees and taxpayers would otherwise have to pay. In addition to prefunding, we need to continue to work with Governor Newsom, the Legislature and stakeholders to be aggressive in containing health care costs for our employees and retirees."

California entered into collective bargaining agreements to prefund retiree health care benefits beginning in January 2010. Prior to these prefunding efforts, the state paid for retiree health benefits on a pay-as-you-go basis - only covering the minimum amount needed to fund the costs as they were due. With all bargaining units except for those under the California State University now contributing to the California Employer's Retiree Benefit Trust (CERBT), analysts expect to see acceleration of the funded ratio.

The state has set a policy goal of full funding by 2046. CERBT funds cannot be used to pay OPEB benefits until the state has fully funded the legacy liability, or 2046, whichever comes first.

As the chief fiscal officer of California, Controller Cohen is responsible for accountability and disbursement of the state's financial resources. The Controller has independent auditing authority over government agencies that spend state funds. She is a member of numerous financing authorities, and fiscal and financial oversight entities including the Franchise Tax Board. She also serves on the boards for the nation's two largest public pension funds. Follow the Controller on X at @CAController and on Facebook at California State Controller's Office.

###