Though Connecticut’s successful slashing of its pension debt dominates the headlines, state officials and workers have collaboratively reduced another onerous burden dramatically over the past five years.
Connecticut had wiped out nearly one-third of the unfunded obligations involving its health care program for retired state workers entering last fiscal year — almost $7.4 billion since 2020, according to a new report from the legislature’s nonpartisan Office of Fiscal Analysis.
When that burden gets out of hand, it mirrors the state’s pension debt and consumes a disproportionate share of the budget, pulling dollars away from education, town aid and other core programs.
But the risk is far from eliminated. Retiree health care debt was driven down by price-savings negotiated by insurance carriers and by unionized workers agreeing to pump hundreds of millions annually to help fund the benefit — but state officials can’t count on those same factors bearing the same fruit indefinitely.
“There are a lot of challenges that we face, but in the last 10 years, I think the story of Connecticut is getting our fiscal house in order,” said state Comptroller Sean Scanlon, whose office administers health care benefits to more than 85,600 retired state workers and their beneficiaries. “This is part of it.”
“Under Gov. [Ned] Lamont’s leadership, Connecticut continues to make progress in paying down its liabilities,” said Chris Collibee, the governor’s budget spokesman, who noted the trust fund for retiree health care — which didn’t exist two decades ago — entered this fiscal year holding more than $3.1 billion.
That’s enough resources to cover 16.2% of the $19.3 billion analysts estimate Connecticut needs to meet its contractual obligations to retirees in the decades to come.
At first glance, that’s far from the 56% funded assets-to-obligations ratio in the pension program for state retirees.
But just five years ago, Connecticut had put away slightly more than $1.5 billion toward its long-term retiree health care responsibilities, and projected obligations were priced at nearly $25.1 billion. That’s a funded ratio of just 6.1%.
Launched in 1978 by state law and later guaranteed through labor contracts, the retirement health care benefit originally had no pre-pay element.
Neither the state nor the workers set aside any money for this. Employees served residents for 10 years or more, and then future generations of taxpayers had to cover the promised benefit, plus inflation.
By the late 2000s, warning bells began to sound.
In 2009, the Center for State and Local Government Excellence found Connecticut’s retiree health care liability was the third-highest in the nation, behind only New Jersey and Hawaii.
That same year, Gov. M. Jodi Rell and state employee unions reached a deal that, for the first time, required some employees to contribute toward their retirement health care. It stipulated that new hires and current employees with less than five years of service would contribute 3% of their pay annually until their 10th year of service.
Through concessions packages in 2011 and 2017, Gov. Dannel P. Malloy and unions expanded contributions requirements to all workers, increased the number of years they had to work to secure benefits from 10 to 15, forced state government to match employee contributions; created disincentives against early retirement; and established a worker wellness program.
A final component required retirees first to use the Medicare Advantage program, meaning 90% of the cost of health services to retired workers age 65 and older are borne by the federal government, not by the state.
And while worker contributions and state matches slowed the growth of debt in this program, the state began to shrink that debt in 2021 under then-Comptroller Natalie Braswell through a big premium savings negotiated with the Medicare Advantage plan carrier.
And when insurance companies sought big premium increases this year for health coverage for current and retired state workers, Scanlon was able to shave $77 million in savings over two years off those hikes.
“It’s a very difficult book of business right now for these companies, and we were able to renegotiate our contract recently that saved the taxpayers of Connecticut tens of millions of dollars,” Scanlon said.
Retirement health care still shifts costs onto future generations
But Scanlon quickly added, “We still have a long way to go, and I don’t think anybody is satisfied by just saying, ‘Hey, we’ve made some progress, and we’re good.’”
According to nonpartisan analysts, the state and its workers dedicated $770 million toward retirement health care in 2024.
But the program analysts say $956 million more was needed if the goal was to leave no expenses for future generations to cover.
The contract that guarantees state employees’ retirement health care benefits runs through June 30, 2027, and Lamont’s administration already is in talks with the State Employees Bargaining Agent Coalition, or SEBAC, about an extension.
Administration officials haven’t shared any details of those talks or if any benefit changes have been proposed.
But union officials, and many members of the General Assembly’s Democratic majority, have expressed fears that the concessions packages in 2009, 2011 and 2017 have watered down public-sector benefits significantly, contributing to understaffing at many state agencies.
“The work of our public workers is even more critical, but too many agencies are already facing crisis level staffing shortages,” SEBAC spokeswoman Drew Stoner said earlier this year when budget cuts threatened staffing in several departments.
Labor leaders and many Democratic lawmakers have called upon Lamont to scale back budget caps that have produced unprecedented surpluses, averaging more than $1.8 billion or 8% of the budget’s General Fund since 2017.
Those savings have been used chiefly to reduce pension debt and bolster reserves. The pension debt, which still exceeded $35 billion entering this past fiscal year and had been amassed over more than seven decades prior to 2011, has understandably become a top priority.
But critics say Connecticut could still could reduce pension debt — albeit at a slower pace — and redirect some dollars to bolster services, preserve worker benefit levels and enhance agency staffing.
Scanlon said his office always will pursue savings involving health care and insurance costs, but medical costs are very volatile, and negotiated premium discounts alone can’t eliminate all unfunded obligations involving retiree health care.
“When that [Medicare Advantage] contract is up again,” he added, “we’ll do what we always do, which is to try to save as much money for people as we can, while still providing the quality plan that people were promised.”
Keith M. Phaneuf is a reporter for the Connecticut Mirror. Copyright 2025 @ CT Mirror (ctmirror.org).