ObamaCare Is Not a Bailout for State and Local Governments

NCPA October 14, 2013

As if ObamaCare's subsidies new taxes and regulations weren't bad enough, the law may also bailout spendthrift state and local governments by allowing them to eliminate retirees' health coverage, says Stephen Eide, a senior fellow at the Manhattan Institute's Center for State and Local Leadership.

While ObamaCare may well change state and local governments' approach to health benefits, it's far from clear that "bailout" serves as an accurate description of how this will all play out. And the term is generally unhelpful, because governments should be encouraged to pursue every possible option, including sending retirees to the federally subsidized ObamaCare exchanges, for unburdening themselves of their retiree health care commitments.

• State and local governments collectively owe more than a trillion dollars for retiree health care, a benefit completely unnecessary for the purpose of attracting and retaining a qualified workforce.
• Only one quarter of all large (200+ employees) employers now offer health benefits to retirees, down from two-thirds in 1988.
• But 77 percent of state and local governments still provide what is often referred to as "OPEB," or other post-employment benefits.

Much uncertainty prevails over how ObamaCare will play out, but two points seem clear.

First, state and local governments are spending too much taxpayer money on retiree health care and should be considering every option available to them to get out of the OPEB business. At the very least, they should eliminate benefits going forward and for newer employees far from retirement.

Two, calling ObamaCare a bailout is misleading because it implies the law will encourage irresponsibility among state and local governments at the expense of taxpayers. Not so: Most governments will need to summon substantial political will to use ObamaCare to drop retiree health care coverage -- and most of them will be acting in taxpayers' interests if they do so. We should be encouraging them to pursue this course, not casting aspersions on it.

Source: Stephen Eide, "ObamaCare Is Not a Bailout of State and Local Governments," Real Clear Policy, October 8, 2013.