Straight Story: The health crisis

Marketplace Staff Mar 16, 2007

TESS VIGELAND:
And it’s time once again for our economics editor Chris Farrell to help you sort out what is smart, what is stupid and what is the straight story. But, Chris, before we get started, let’s deal with the little stupid.

CHRIS FARRELL:
Tess, what did you do?

VIGELAND:
We heard from several listeners who caught a mistake I made around this time last week and promptly hauled me out to a woodshed in the remotest part of North Dakota.

FARRELL:
Hey, they listen. They listen carefully.

VIGELAND:
They do and they’re very, very passionate constituents. I called U.S. Senator Kent Conrad a Republican.

FARRELL:
Oops.

VIGELAND:
And he’s not.

FARRELL:
No.

VIGELAND:
So my apologies to the Senator who I am sure is a fine man and upstanding young senator and a handsome man even I’m sure.

FARRELL:
But he’s also a Democrat.

VIGELAND:
But he’s also a Democrat. With that out of the way, this week, Chris, the New York Times said some Texas public officials are trying to stir up a rebellion in some other states. Texas? rebellion? But what has them riled up is a new accounting rule. You wanna explain this a little bit?

FARRELL:
All right. Simply put, Tess, states and cities have public employees and they promised these employees health benefits in retirement. And this new rule says all 50 states in the biggest cities have to calculate the value of those benefits and disclose them.

VIGELAND:
Chris, we’re talking about an accounting rule. Why are we so upset about this?

FARRELL:
Right. This is one of those moments wake me up in 30 years.

VIGELAND:
Yeah. Just wake me up, period.

FARRELL:
Listen, Tess, the numbers are big, really big. This government’s financial obligation lies somewhere in the neighborhood of a trillion bucks and probably more. The figures are so daunting that those officials in Texas you mentioned, they have a brilliant idea. Hide the information.

VIGELAND:
Oh, good Lord.

FARRELL:
Well, here’s the straight story. Out of sight and out of mind accounting is a recipe for fiscal disaster. Let’s figure out the future tab and then we can debate how to pay for it.

VIGELAND:
All right. How did we get here in the first place?

FARRELL:
You know, it’s like so many other things, Tess. Health care costs weren’t that much. Health care expenses got higher, but then there were contentious negotiations. And so, by 10 years ago, a group called GASB, how’s that for acronym?

VIGELAND:
Gatsby?

FARRELL:
GASB?

VIGELAND:
Oh, GASB.

FARRELL:
Government Accounting Standards Board said, you know, let’s start disclosing this. Let’s, let’s really figure out this number, what do those public officials negotiate?

VIGELAND:
Well, this is not money that has to be paid out today, so why are we worried right now? Let’s just kick the can again. Kick it down the road.

FARRELL:
That worked for a long time. But unfortunately, the numbers are getting so big because we have an aging population. Health care costs continue to rise, something that we’d talk about a lot, that a lot of states are having to grapple with it. How are you gonna pay for it down in the future? And by the way, future taxpayers are we gonna pay more, we’re gonna try and cut benefits. The deal has been negotiated and I believe in disclosure. This is what’s been done, now, let’s figure it out.

VIGELAND:
All right. Well, you just asked the question, give me an answer. How are we gonna pay for all this?

FARRELL:
Well, there’s a report out by the Rockefeller Institute who does a lot of good studies on state and local governments. And they said, you know, one option is do nothing.

VIGELAND:
What government doing nothing?

FARRELL:
Do nothing strategy. I think Texas is trying to pursue that. Another, pre-funding. So you have some budget surpluses. A number of states have them right now. You set aside some of the money. The money will grow over time, compound interest, something we talk about a lot, to help pay for these obligations. And by the way, that does mean some of that money might not be going to education or crime prevention.

VIGELAND:
The bill is gonna come due.

FARRELL:
The bill is gonna come due. Another thing that a number of states are wrestling with is look, you keep the promises to the retirees, existing retirees, but to workers that you’re hiring now, you’re gonna give them less of the benefit. But a number of states are actually working on this. We sort of went through a phase of, as one wag, you know, said there was the six stages of GASB 45, that’s the actual rule, GASB 45, which is anger, denial, sorrow, acceptance, study and action.

VIGELAND:
And sleep.

FARRELL:
Most states are moving toward action, not sleep. These numbers are too big to fall asleep on.

VIGELAND:
All right. Our man Chris Farrell with the straight story. Thanks, Chris.

FARRELL:
Thanks a lot, Tess. And by the way, Tess, I just have to defend accounting. It’s actually a fascinating look at the world.

VIGELAND:
Whatever.

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