Addressing Retiree Health Care Costs

Robert Bifulco and Iuliia Shybalkina

Public Budgeting & Finance, 2026, vol. 46, issue 1, 3-19

Abstract: State and local governments face substantial unfunded liabilities from other post‐employment benefits (OPEB), primarily retiree health care. While pension policies provide useful lessons, OPEB presents distinct challenges: it is minimally prefunded, more legally flexible, and highly sensitive to rising health care costs. This article examines strategies to address escalating retiree health care costs, including benefit adjustments, higher retiree contributions, full prefunding, and partial prefunding approaches. Our analysis shows that, except in districts with steeply declining revenues, combining moderate benefit changes with partial prefunding can stabilize costs for most districts, though implementing such measures will require navigating politically challenging trade‐offs.

Date: 2026
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