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Public Employee Health Benefits Weather Rising Costs and Tight Budgets

Health Affairs Article: Rising Costs and New Government Accounting Standards Could Threaten Status Quo of Relatively Generous Public-Sector Benefits

News Release
April 18, 2006

Alwyn Cassil (202) 264-3484 or

WASHINGTON, DC—Generous public employee health benefits have survived major threats so far, but the growing gap between public- and private-sector benefits, coupled with new accounting rules for government agencies, could force public officials to make more far-reaching benefit changes, according to a study by Center for Studying Health System Change researchers (HSC) published today as a Web exclusive in the journal Health Affairs.

"While budget pressures to cut public employee benefits have been intense, actual changes in benefits have been modest, creating a growing gap between the generosity of public and private workers’ coverage in recent years," said Robert E. Hurley, Ph.D, an HSC senior consulting researcher and associate professor at Virginia Commonwealth University. HSC is a nonpartisan policy research organization funded principally by The Robert Wood Johnson Foundation.

The Health Affairs article, titled "Public Employees’ Health Benefits Survive Major Threats, So Far," is based on HSC’s 2005 site visits to 12 nationally representative metropolitan communities—Boston; Cleveland; Greenville, S.C.; Indianapolis; Lansing, Mich.; Little Rock, Ark.; Miami; northern New Jersey; Orange County, Calif.; Phoenix; Seattle; and Syracuse, N.Y. HSC has been tracking change in these markets for the past 10 years.

"Generally public employers avoided shifting higher health costs to workers, but some workers paid to keep their generous health benefits by forgoing wage increases," said Laurie Felland, an HSC researcher and study coauthor, along with HSC Research Assistant Anneliese Gerland and HSC Statistician Jeremy Pickreign.

The authors note in the article that "several policy and market factors have prevented dire consequences for public employee benefits during this challenging period, including public budget maneuvering, a reaffirmed commitment to maintenance of benefits for public-sector workers, direct and indirect effects of public-sector unions, and political sensitivities."

Unlike in the private sector, where retiree health coverage has declined markedly in recent years, public benefit managers "reported great reluctance among public-sector managers and elected officials to tamper with retiree" health benefits, according to the article.

In the near future, the cost of retiree health benefits is likely to be a growing issue for state and local officials as they grapple with the ramifications of new requirements from the Government Accounting Standards Board to record long-term liability for expected costs of health benefits promised to all current and future retirees. "As the director of one state employee benefit program graphically put it: ’When I wake up in the morning and think of what this number [the liability] might look like, I just want to pull the covers over my head and go back to bed,’" the article states

Other key findings of the HSC study include:

  • Most public employers continue to provide a broad range of plan choices, usually with multiple carriers. Contrary to trends in the private sector, health maintenance organizations (HMOs) have retained sizeable public employee membership.
  • Despite the size and geographic concentration of their workforces, most public employers have not tried to influence broader market changes and have chosen not to become involved with large purchaser-driven initiatives related to quality or public reporting of provider performance. Exceptions include Boston and Seattle, where public purchasers are in the vanguard to promote market changes.

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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation’s changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded principally by The Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research, Inc.



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The Center for Studying Health System Change Ceased operation on Dec. 31, 2013.