That still leaves trillions of pension dollars that will have to be paid by those same children but like the pension promises themselves, this will provide temporary relief, and afford the current crop of politicians time to finish up their careers and get the hell out of Dodge.
States and localities have enormous liabilities in the form of health benefits they have promised to provide to retired workers. (Finance professionals call these benefits OPEB, or “other post-employment benefits.”) Most public sector retirees get health plans until they turn 65, and then supplemental coverage on top of Medicare after that.
In most cases, state and local governments haven’t prefunded these liabilities at all. As Americans age and health care costs rise, this is becoming a major drain on state and local finances, arguably more important than more-widely-discussed problems with public employee pensions.
But Obamacare will give states and cities a major out. Instead of providing health care to under-65 retirees, they can tell them to go buy health plans in the Obamacare exchanges. In many cases, those retirees will qualify for substantial subsidies to buy such plans. States and localities will often stand to save thousands of dollars per retiree per year, even if they provide a cash stipend to help each employee buy insurance in the exchange.
All told, state and local governments should be able to shift hundreds of billions of dollars in OPEB liabilities to the federal government. That will mean a major saving for those governments. But it will also drive costs upward at the federal level.