PICO BLVD ‚Äî Santa Monica College officials will need to take action to control health care costs currently projected to hit $87 million over the next 30 years, according to a study on health care liabilities.
The report, presented to the Board of Trustees at their meeting Tuesday, estimated that to pre-fund health care plans promised to employees as of June 2011, the college would have to set aside $8.1 million, $5.3 million more than it currently spends in a year.
Those plans include lifetime health care benefits.
Currently, the college operates on a pay-as-you-go model, covering the expenses of retiree health benefits in the year they are paid without budgeting for the future.
That cost was $2.8 million this year, but is expected to rise.
That could leach money from the college‚Äôs main mission, serving students, if health care costs continue to rise as they have in recent years when unfunded liabilities for future health care costs jumped nearly $20 million between November 2008 and June 2011, according to the report.
It‚Äôs a question of sustainability, said Trustee Louise Jaffe. The college needs to pay for its promises to employees, but to do so it needs the money it gets from student enrollment.
If an ever-rising amount of the budget goes toward health care costs for already-retired employees, it cuts the amount that can go to serve current students.
“It can become a real catch-22,” Jaffe said.
The concept of rising health care obligations isn‚Äôt new. It‚Äôs been on the horizon for several years, Jaffe said, but the immediate problem of the fiscal crisis at the state level and millions of dollars cut from the community college system overshadowed problems down the road.
Now that the patient is stabilized, it‚Äôs time to look at management of the problem in the long term.
Putting up the full $8.1 million would be difficult for the college, which already carries a $6.27 million operating deficit, according to an updated budget projection.
The board plans to take up the matter at its March 5 meeting. Members hope to learn more about what other colleges are doing to balance their budget needs with promises to employees, said Trustee Susan Aminoff.
“We‚Äôre going to have to begin an earnest discussion about this obligation, and what it means going forward,” Aminoff said. “It is a defined benefit, an obligation that we incurred. We told folks you will have lifetime benefits.”
The figures reflect the rising cost of health care in the United States ‚Äî which doubled between 1999 and 2009, according to the Santa Monica-based RAND Corporation ‚Äî as well as new accounting rules that force institutions to reflect unfunded liabilities upfront.
Although there was already a shift in thinking, the new rules gave public-sector institutions more options, said Paul Fronstin of the Employee Benefit Research Institute.
“As a result, public sector employers that choose to pre-fund the benefit can substantially reduce their long-term liability,” Fronstin said.
Public sector employers are some of the few that still contend with retiree health benefits.
According to a report by the Employee Benefit Research Institute, only 17.7 percent of employers offered health coverage to early retirees, down from 28.9 in 1997.
While many employers have dropped retiree health benefits entirely, many of those that continue to offer the benefits have made changes to the packages by raising premiums, tightening eligibility, limiting or reducing benefits or some combination, according to the institute.
There are still many unknowns in the equation, including the potential impacts of the Patient Protection and Affordable Care Act, better known as Obamacare.
More provisions of that law, including a requirement for state-based health care exchanges, will come online in 2014.