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For most New Yorkers, employer-sponsored health benefits exist only while they are on the job. When they retire, the benefits end.   

Not so for public employees. 

Nearly all the 1.3 million state and local public employees in New York are promised that a substantial portion of their medical costs will be subsidized by taxpayers from the day they retire to the end of their life.[i]  

Government employers in the state typically pay a share of the health insurance premiums of employees who retire before they become eligible for Medicare. For those on Medicare, governments pay a share of the premium cost of supplemental insurance designed to fill in the gaps in coverage. Some governments also contribute to the cost of Medicare Part B premiums and other retiree medical expenses. 

No money is set aside to pay these bills. IOUs to pay future medical costs just pile up.   

Nearly $360 billion dollars—more than one-third of a trillion dollars—is owed by taxpayers to New York’s public employees. That’s larger than the combined annual budgets of New York State and New York City. And it’s all to pay a retirement perk few who work outside government get. 

Strain on public budgets to pay these bills as they come due will require steep cuts in essential public services or extortionary tax hikes.   

Those scenarios can be avoided. Unlike government pensions, existing retiree health care terms are not a legal or constitutional guarantee. The terms are subject to revision via collective bargaining, administrative adjustment or legislation, depending on the specific benefit.  

Government should adjust unaffordable promises. For new hires, they should pay for retiree health care benefits at the time they’re earned. A regular defined contribution to employee retiree health care savings accounts would provide resources for government workers to save toward their own retirement medical costs, without leaving future taxpayers in the lurch. 


This paper’s estimate of retiree health care debt is derived from data reported in the most recent annual public financial statements filed by New York State, New York City and more than one thousand other individual jurisdictions in the state, including counties, cities, towns, villages, school districts and other public employers.

*Includes the Legislature, Judiciary, state agencies, SUNY & CUNY & state authorities.
**Includes BOCES, community colleges, industrial authorities and others.
Sources: Comprehensive Annual Financial Reports for each jurisdiction. 

Retiree health care benefits represent the overwhelming majority of what are classified by accountants as “Other Post-Employment Benefits” or simply “OPEB”—meaning employer-sponsored retirement benefits other than pensions. This paper treats the term “OPEB” as interchangeable with retiree health care benefits.[ii] 

Unlike pension obligations, which are pre-funded, and the liability pooled among public employers, OPEB debt is nearly always unfunded, and the obligations are the responsibility of individual employers. To comply with the Government Accounting Standards Board (GASB), each state, county, city, municipality, school district and other public employer annually calculates and report out its own OPEB liability using specific protocols.[iii]

Retiree health care expenses are paid by employers as bills come due, on a pay as you go (aka “pay go”) basis. But the pay go expense is just the tip of what we’ve previously likened to a huge and growing “iceberg” of submerged OPEB liability.[iv] The iceberg swells annually because the pay go cost—large by any other measure— is annually dwarfed by the accrual cost of new benefits and unpredictable cost variables like medical inflation and insurance premium rate hikes.  

Last year, New York City spent $3.18 billion on retiree health care. But its OPEB debt still grew by $8.5 billion. How? During the year, $5.57 billion in earned benefits were accrued by active city employees; $3.14 billion in interest accrued on pre-existing OPEB debt; and the city’s Chief Actuary hiked projected costs by $3.19 billion. At year’s end, the Big Apple had $117.9 billion in OPEB debt—more than any government except the state of California. 

New York’s state government separately owes $104 billion, after accounting for state agencies ($60.3 billion), SUNY and CUNY (a combined $17.6 billion), and the MTA and other state authorities (a combined $26.1 billion).[v]  

New York jurisdictions collectively owe the most disproportionately large share of the entire $1.2 trillion OPEB debt amassed by state and local governments around the United States, according to a survey released in February by the Reason Foundation. The survey estimated that New York, with roughly six percent of the national population, owes 25 percent of the national debt.[vi]  

Nearly two-thirds of New York’s OPEB debt is owed by New York City and the state government, but most of all its counties, cities, towns and school districts have pledged future revenues to retired employees’ health bills. 

Nassau County owes $6.6 billion, and Suffolk County owes $6 billion. On a per household basis, the less populous upstate counties of Essex and Lewis are even deeper in hock, with Essex owing $18,934 per household and Lewis owing $18,052 per household. 

Other than the Big Apple, Rochester owes the highest OPEB debt among cities at $1.6 billion; White Plains is highest in OPEB debt per household, at $25,193. 

The Buffalo City School District’s $2.6 billion OPEB debt is the highest of any school district outside of New York City.   

Residents owe a share of the OPEB debt of each jurisdiction they live in. To generate the revenue to cover retiree health bills as they come due, for instance, Buffalo residents are subject to tax hikes from the state, the city of Buffalo, the Buffalo City School District and Erie County —all of which owe substantial OPEB debt. 


Few private employers in the United States offer retiree health care. Even among large (200+ employees) private firms that offer employer-sponsored health care coverage, only ten percent extended that coverage to new retirees in 2018.[vii]  

The benefit was once more common. In 1988, two-thirds of large private firms offered retiree health care. But for two primary reasons that shrank to 34 percent by 2001 and kept falling.[viii] 

First, employers got into trouble by promising benefits they had set aside no resources to pay for. That includes Detroit's “Big Three” auto manufacturers—General Motors, Ford and Chrysler—who in flush times promised generous retiree health care in negotiations with the United Auto Workers union. But when profit margins shrank due to international competition, they became overextended. The proportion of retirees to workers rose, as did medical cost inflation. Retiree health bills soaked up an increasing share of annual revenues. By 2007, the Big Three had amassed a combined unfunded OPEB liability of $94 billion. Painful negotiations ensued concerning the need to reduce retiree benefits or increase retiree contributions.[ix]  

Another factor that drove private companies to curb OPEB promises were accounting rule changes made by the Financial Accounting Standards Board (FASB) beginning in 1990 that required public companies to prominently display the full, long-term cost of current promises in corporate financial statements. Firms worried that the disclosure of massive long-term liabilities on their balance sheet would lower their stock market value and credit rating.[x]  

But if unaffordable OPEB promises are no longer being shouldered by shareholders, why are they still being made on behalf of taxpayers?  


Annual scrutiny of public budgets typically focuses on the short-term. Most media assessments view a “balanced budget” as being achieved when revenues and expenditures align for the budget year. Outyears are ignored. Public managers under pressure to hike spending with constrained revenue are inclined to defer liabilities to the future insofar as accounting rules allow.  

Enter OPEB accounting. Pension and retiree health care benefits are both forms of deferred compensation; they’re earned when employees are active but paid out during retirement. A key difference is that public employers must set aside funds for the former and not the latter.  

As a result, future pension costs are at least somewhat funded. The state pension fund, controlled by the Comptroller, had $260.1 billion in assets as of March 31, and reports sufficient funding for 99.95 percent of projected costs. New York City’s Chief Actuary reports pension obligations are 95.3 percent funded across the city pension systems with $249.7 billion in assets held in trust to offset $261.9 billion in anticipated liabilities.[xi] While the situation is not as rosy as these numbers imply—the discount rates used are questionable and the actuarial assumptions subject to change—public employee pension solvency in New York State is considered relatively sound.[xii] 

Retiree health care, on the other hand, allows public officials to offer something for nothing. They can pledge future benefits without funding them. That wins credit from public employees and unions without requiring tough budgetary tradeoffs. The loser is future taxpayers, who are asked to pay taxes they didn’t vote for, to pay for services they didn’t receive.   

The incentives created by OPEB accounting contributed to an accumulation of OPEB debt by state and local governments. That prompted GASB in 2004 to piggyback on the FASB changes to private sector OPEB accounting and issue a series of rules, starting with GASB Statement 45, increasing the visibility and consistency of OPEB data reported in public financial statements.[xiii] In 2015, GASB issued Statement 75, requiring local governments and school districts to report total OPEB liability in the statement of net position.[xiv]  Under GASB rules, employers also need to discount unfunded OPEB liabilities using a long-term municipal bond rate that prevents governments from understating their OPEB debt.  

What GASB has not done is require public employers to pre-fund retiree health care in the way that they do pensions. There’s a reason for that. 

OPEB promises are not binding legal or constitutional obligations, as pensions typically are.  Article V, Section 7(a) of the New York State Constitution states that, “any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired.[xv] And the state’s highest court has interpreted the “diminished or impaired” language to mean that pensions must be adequately prefunded.[xvi] 

The Court of Appeals ruled decades ago that this language doesn't apply to retiree health care.[xvii] Public employers in New York are permitted (not required) by statute to grant retiree health care. The vast majority do so. But the terms can be changed.  

Health care benefits for active employees are typically negotiated within collective bargaining agreements (CBAs) subject to periodic renewal. These CBAs don't usually guarantee that retired employees will continue to get specific health care benefits for a set duration of time. Absent such explicit language, the Supreme Court clarified in a 2015 ruling, it can't be inferred the contracts contain an “implicit” vested interest in guaranteed health care benefits for life.[xviii]    


Paying for retiree health care on a deferred basis creates OPEB debt. The outsized proportion of New York’s iceberg of OPEB debt is largely due to the uncapped, open-ended type of subsidy offered by the state’s government employers. 

They typically pay a fixed percentage share of the health insurance premiums of employees who retire before they become eligible for Medicare. For those on Medicare, they pay a share of the premium cost of supplemental insurance designed to fill in the gaps in coverage.  

This creates a costly entitlement. Its price tag is subject to rise unpredictably with medical inflation and premium rate hikes. 

In contrast, many states reduce taxpayer exposure to unpredictably rising medical costs. Some provide a fixed dollar subsidy to employees for retiree health care. Others charge the full premium cost for insurance but provide an implicit subsidy through risk-sharing in which retirees are included in the same insurance pool as active workers.[xix]

A 2017 national study issued by Pew Charitable Trusts found: 

The primary driver for the variation in OPEB liabilities is the difference in how states structure health care benefits for retirees... States that provide eligible retirees a monthly contribution equal to a flat percentage of the health insurance coverage premium report the largest liabilities—and could face the greatest fiscal challenges because their costs automatically increase as plan premiums do. Conversely, those states with fixed-dollar premium subsidies provide a smaller benefit and report lower liabilities. Their exposure to health care cost inflation is also lower, because a fixed-dollar subsidy does not rise with the plan premium.  Lastly, the states that only provide access to a retiree health plan, with no subsidy, have the lowest liabilities as a percentage of personal income.[xx] (Emphasis added) 

Retiree health care benefits in New York are mostly delivered through the same insurance programs in which active employees participate. The largest health plan for state and local employees in New York is the New York State Health Insurance Program (NYSHIP). Employers currently participating in NYSHIP include 48 state agencies, most of the state’s public authorities, and 802 local governments. NYSHIP covers 608,846 enrollees and a roughly equal number of their dependents—a total of 1.2 million individuals.   

Notably, the proportion of active enrollees has shrunk to 51 percent, from 60 percent in 2010.[xxi] 

This means jurisdictions are collectively paying health benefits for nearly as many retired workers as active ones. 

Retirement eligibility starts at age 55 for public employees hired before January 1, 2010. Police and fire employees are typically retirement-eligible after 20 or 25 years of service, regardless of age. Under NYSHIP, those who retired before 1983 pay nothing toward health insurance premiums for themselves and 25 percent of dependents’ costs. Those retiring between 1983 and 2011 pay 12 percent of the enrollee premium and 27 percent of the dependent premium. Those retiring in 2012 or later pay 16 percent and 31 percent, respectively. The state reimburses Medicare eligible enrollees' 100 percent of the Medicare Part B premium. The standard Part B premium amount for 2021 is $148.50 monthly.[xxii] 

These terms are more generous than those enjoyed by federal government retirees, who typically pay 28 percent of the health insurance premium for both individual and dependent coverage and receive no Medicare Part B support.[xxiii]    

The New York City Health Benefits Program (NYCHBP) is among the most generous of all the nation’s public plans. NYCHBP’s enrollment includes 304,000 active employees and 266,000 non-active (mostly retired). The plan currently covers 188,000 Medicare-eligible enrollees and 75,000 non-Medicare eligible retirees.  

Under NYCHBP, the city pays: 

  1. The full cost of individual and family premiums for both non-Medicare and Medicare plans;  
  2. The full cost of Medicare Part B premiums for covered retirees and eligible spouses; and 
  3. Contributions to union “welfare funds” on a per-capita basis. The funds are a conduit for additional city payments to cover out of pocket costs, co-insurance, and other additional medical expenses of city retirees. 

For non-Medicare retirees, the city spent last year about $9,300 per individual and $24,000 per covered family. For Medicare enrollees, the combined cost of Medicare Part B and SeniorCare was about $4,000 per individual and $8,000 per family. Welfare fund contributions differ by union but currently average another $1,800 per enrolled retiree.[xxiv]   

Due to these generous terms, the city’s OPEB liability of $117.9 billion now easily exceeds its entire annual budget. It reflects an average future retiree health care expenditure of more than $200,000 for each of the city’s 570,000 active and retired enrollees. 

Many localities across the state are in even greater hock than New York City or the state government, in proportion to their revenues. For instance: 

  • More than one-third of school districts had OPEB liabilities at least twice their annual revenue, including 54 districts with OPEB debt to revenue ratios of 300 percent or more; and 
  • Most cities in the state owe OPEB debt at least twice their annual revenue. 

Retiree health care costs keep rising when populations and revenue bases shrink—as they did in many upstate jurisdictions in recent decades. The result is a higher proportion of revenue spent on OPEB. Buffalo’s population declined 15 percent between 1990 and 2020; Not surprisingly, the city is among the employers providing health benefits to more retired employees than active ones.[xxv]    


Iceberg Preservation Efforts 

The brewing OPEB storm is largely ignored by the state’s elected officials. But some in the State Legislature periodically introduce union-supported bills that seek to legislatively lock in existing OPEB liabilities.[xxvi]  

These are attempts to extend coverage of a 1994 law that prevents health care benefits for retired school employees from being altered unless the same terms are applied to active teachers—a lock-in law that largely blocks all reform paths other than collective bargaining. They would make the outlook more dire. 

The Assembly approved such a bill in June, just prior to adjourning. Sponsored by Brooklyn Assemblyman Peter Abbate, A5108 locks in existing OPEB terms for retired New York state and local police and firefighters and their dependents.[xxvii]  

Notably, Abbate’s memo accompanying the bill claims it has no fiscal implications for state or local government, since it “simply continues the benefits and employer contributions being made as of May 1, 2008.”[xxviii]  

To require the re-upping of existing terms is not free. It’s a multi-billion-dollar mandate dictating to localities how to spend their own revenue. Abbate’s bill was not taken up by the Senate.[xxix] But efforts to lock in OPEB liabilities are likely to continue. 

Employer Pre-Funding Accounts 

A more proactive way to address growing OPEB liabilities is for governments to create dedicated savings accounts in which they can store and invest public funds to use to pay retiree medical bills. Advocates include Comptroller DiNapoli, who in 2015, proposed legislation authorizing the establishment of such accounts by New York’s local governments.[xxx]  

This road has been traveled. In 2006, New York City under Mayor Bloomberg created a separately authorized retiree health benefits fund. The city has in good times managed to contribute billions to the fund. But it's also drawn down funds during tough times. As a result, its valued today at $4.2 billion—offsetting just 3.5 percent of the city’s OPEB liability.[xxxi]  

At the federal level, a statutory retiree health care prefunding requirement was applied in 2006 to the United States Postal Service (USPS)—a self-financing entity and one of the nation’s largest employers. USPS stopped making the prefunding payments within a few years, as increased electronic communication caused first class mail to plummet, and postal revenue to fall off. Congress allowed USPS to default on the payments. At the urging of postal unions, national lawmakers have since sought to rescind entirely the pre-funding mandate. It's now apparent that postal retirees’ health benefits are only sustainable via a huge taxpayer bailout. 

Had OPEB pledges required pre-funding to begin with, the benefits promised would no doubt be more affordable—and they would be paid for today. But prefunding at this point will not solve the problem. It requires annual fiscal discipline just to keep from backsliding. And New York jurisdictions are too far behind the eight-ball to save enough to melt most of the OPEB iceberg absent extortionary tax hikes or draconian cuts to public services.   

Medicare Advantage 

An increasingly popular alternative to traditional Medicare is Medicare Advantage. These plans are administered by private companies that contract with the federal government and are paid a fixed amount per person to provide Medicare benefits. Nationally, enrollment in Medicare Advantage doubled in the past decade to 26.4 million individuals, accounting for 42 percent of the Medicare population. Enrollment rose ten percent in the last year alone.[xxxii] Illinois and Pennsylvania are among the states that save on retiree health care expenses by offering health insurance to Medicare-eligible retirees only through Medicare Advantage programs.   

Under Medicare Advantage, public employers can save money without requiring retirees to contribute more. That makes it low-hanging fruit in the quest to reduce the cost of retiree health care. 

In July, New York City under Mayor de Blasio and its Municipal Labor Committee (MLC), an umbrella group of city employee unions, agreed to shift existing and future Medicare-eligible retirees into a Medicare Advantage program on January 1st.[xxxiii]   

The city’s Medicare-eligible retirees have been enrolled premium-free in one of two Medicare supplemental health insurance plans. Under New York City Medicare Advantage, traditional Medicare and the city’s Medicare supplemental plans are replaced with a single integrated program. The city saves money by paying lower per-employee plan premiums (this in turn is made possible via federal subsidies to Medicare Advantage providers). Medicare-eligible retirees benefit from a new cap on out-of-pocket expenses, a discounted prescription drug rider, and new benefits including transportation costs. The tradeoff is that some procedures would require preauthorization and some restriction of doctor choice is possible. Enrollees can keep their current coverage, but it will cost them $191.57 per month to do so.   

Unfortunately, the city’s plan may yield little or no taxpayer savings. The city began searching for retiree health care savings in earnest in 2014 only after $1.3 billion was siphoned out of a health benefits slush fund jointly controlled by the city and the MLC to provide pay raises for teachers. A de Blasio spokeswoman told the Daily News that the $600 million in annual savings from Medicare Advantage would replenish the slush fund, which in turn finances the union-administered welfare funds intended to pay extra medical expenses of members.[xxxiv]   

So, the primary result of a New York City switchover to Medicare Advantage may be to redirect billions in retiree health care spending from individual insurance premium support into spending vehicles that more empower union leaders. 

More broadly, Medicare Advantage offers the potential for some retiree health care savings, especially where other options are limited.  A major shortcoming, however, is that it won't reduce the bills paid for younger retirees under age 65—the group most costly for employers to cover. 


New York's $359.7 billion debt iceberg is a real threat. 

If it’s not shrunk down, it will capsize communities forced to make stark choices between cutting essential services, abruptly severing retiree health benefits or raising taxes. 

It's not too late to implement reforms that reconcile the interests of retirees, employers and the public. 

To do this, public officials must get a firm grasp on the nature of the OPEB agreements entered into with employees, so they know the tools at their disposal for revising terms too costly to maintain. The latitude available to them will depend on whether retiree health care terms are set administratively, via local legislation, or through collective bargaining. 

Small Tweaks for Existing Retirees 

Existing retiree costs should be curbed judiciously, with the fewest changes made for older retirees. For those already Medicare-eligible, employers should consider Medicare Advantage and reduce or end reimbursement of Medicare Part B premiums.  

Younger retirees should be required to pay increased premiums. Most public employers in New York require employee contributions far below the allowable statutory maximum, which is 50 percent for employees and 65 percent for dependents.   

Defined Contributions 

Going forward, New York needs to make a clean break from the past. Taxpayers who don’t work in government should not be made to pay exorbitantly for a benefit largely extinct outside of the public sector.  

All employee benefits, including retiree health care, must be paid for when earned. That maintains intergenerational equity and eliminates political incentives to overspend. 

A responsible way to balance the interests of public employees and taxpayers in New York is to transition over to a defined contribution approach in which active employees get regular, fixed employer contribution to help them build up savings to defray health care costs in retirement. That approach can provide predictable costs to public employers and insulate retirees from the prospect of unpredictably abrupt and draconian benefit reductions. 

Medical Trusts  

One shortcoming of individual accounts is that they preclude risk pooling and restrict the earnings potential of invested contributions. To avoid these limitations, groups of employees can pool contributions via retiree medical trusts (RMTs). These vehicles, which can be established as that can be established as legally distinct from both government employers and unions. RMT dollars are invested by independent advisors, and the contributions and earnings be exempt from taxation if the RMT is set up as a tax-exempt entity under IRS rules. The future streams of income generated by the trust would defray the cost of individual employees’ health care costs in retirement.[xxxv]  

A violent collision with New York’s OPEB iceberg can still be averted. But taking action before it's too late requires elected officials and public managers to reveal to residents the danger lying just beneath the surface of public budgets—and then take a stern hand at the helm.       



Source: Comprehensive Annual Financial Reports for each jurisdiction. 

Sources: Comprehensive Annual Financial Reports for each jurisdiction and US Census household data. 

Sources: Comprehensive Annual Financial Reports for each jurisdiction and US Census household data.

Sources: Comprehensive Annual Financial Reports for each jurisdiction and US Census household data.

Sources: Comprehensive Annual Financial Reports for each jurisdiction and US Census household data. 


[i] All New York State and New York City employees get retiree health care, and retiree health care liabilities are reported by nearly all the cities, towns, villages and school districts whose financial information is posted on the New York State Comptroller’s Open Book New York website,

[ii] Other types of post-employment benefits classified under OPEB include e.g. life insurance and disability benefits






[viii]  Ibid




[xii] There are 675,519 active members and 496,628 retirees in the New York State and Local Retirement Systems (NSLRS)

[xiii] GASB statements are long and technical; GASB provides a summary of GASB 45 at, and an FAQ about it at

[xiv] GASB 75 is available here: and the State Comptroller provides a summary of it here:



[xvii] See e.g., Lippman vs. Board of Education, 66 N.Y. 2d 313 (1985)

[xviii] M&G Polymers USA v. Tackett, 135 S. Ct. 926 (2015)


[xx]  See pages 3-4.



[xxiii] Federal employee health insurance premium contribution shares for 2022 under the FEHBP are described by the federal Office of Personnel Management, which administers the program, at this website:

[xxiv] Statistics are from September 10, 2021, update from New York City’s Chief Actuary

[xxv] According to the Buffalo’s 2020 Comprehensive Annual Financial Report, 2,635 active employees and 2,829 retired ones were enrolled in its health plan.

[xxvi] See


[xxviii] Ibid

[xxix] Ibid

[xxx] Press release describing the legislation is here:

The legislation is here:

[xxxi] See e.g.


[xxxiii] See


[xxxv] See

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