On a staggered basis beginning July 1, 2007, the Commonwealth and its cities and towns will be required to show their future unfunded health insurance costs for employees and retirees. These costs will be shown as a liability on their financial statements, thus greatly impacting bond ratings. “This (unfunded future costs) will be treated as debt,” said Association President Ralph White.

“This presents a situation similar to our pay-as-you-go retirement systems 20 years ago, before pension funding laws were put in place in Massachusetts to address the unfunded pension liabilities. Massachusetts was the last state in the country to acknowledge the problem. But in fairness, the state and municipalities have embarked on successful accelerated liability catch-up plans, and our bond ratings are as good as any state,” White said.

The date for governments to show the cost of their accrued health insurance liabilities was set by the Government Accounting Standards Board (GASB). For more details on GASB, see related article. The first statewide response to this has been a bill drafted by the Office of the State Comptroller.

The Comptroller's draft legislation would establish a nine-member commission to ensure compliance with GASB (pronounced “Gasby”). The commission would issue a report to the Legislature by March 2006 which would address the insurance liability, funding sources and the potential cost savings that would be generated if the Commonwealth and its subdivisions were joined in an organization to finance and manage current and post employment and health care costs. A copy of such report would also be submitted to the Secretary of Administration and Finance who would take steps necessary to implement the recommendations of the special commission.

The commission members would include the state comptroller, the secretary of administration and finance, the director of the Group Insurance Commission, the director of PRIM, the commissioner of PERAC, a delegate of the MMA, the director of accounts at the Dept. of Revenue and the chairmen of the House and Senate Ways & Means Committees.

Back in the '80s, the Mass. Turnpike Authority addressed its future health insurance debt problem by establishing a health insurance trust for its employees and retirees.

“Because the Turnpike Authority was scheduled to go out of business (dissolved) when its bonds were paid off, the directors felt an insurance trust should be established to give protection to members of the Turnpike Retirement System,” said Jerry Coughlin, a member of the Turnpike Retirement Board.

The trust, which now has a value of about $38 million, has a conservative investment strategy of a mix of large cap growth and value equities and fixed income. The Turnpike's chairman, chief financial officer and general counsel are the fund's trustees.

In Arlington, John Bilafer the longtime town treasurer and chairman of the Arlington Retirement Board, has been ahead of the curve in actively pursuing pre-funding for retiree health insurance costs. Bilafer was instrumental in establishing a separate insurance fund of about $1 million through appropriations over the last four years. He is now seeking increased funding from the town.