More than 2,100 former employees in 57 suburbs cost taxpayers almost $16.5 million in health insurance costs last year.
Experts expect that figure to rise steeply as more municipal employees head into retirement before they are eligible for Medicare at age 65. But even then, Medicare eligibility only reduces the municipal tax burden rather than putting an end to it.
On average, the cost to taxpayers in those suburbs was about $7,700 per retiree last year, according to a Daily Herald analysis of the towns' most recent audits.
While providing access to health insurance for former workers is no surprise -- and is actually required by law -- few, if any, of the towns have funds set aside to cover these rising costs.
"The people in the future are having to fund this and they're not getting any government service for it because the money is going to someone who is retired," said Sheila Weinberg, founder and CEO of Truth in Accounting, a group pushing for more uniform, understandable and accessible government financial reporting requirements.
A town's health insurance plan costs more if retirees are in it, municipal officials said. Those additional costs aren't picked up by retirees, even if they pay the entire premium.
"The insurance coverage for older, retired people is actually used more than the younger population and thus costs more," said Arlington Heights Finance Director Thomas Kuehne, whose village paid $562,603 last year to cover the additional costs of having 218 retirees on the plan. "If our retired folks were not able to participate, then theoretically the insurance plan would be less expensive."
While most municipal retirees are required to switch to Medicare for primary coverage when they reach 65 years old, they are still allowed to keep paying for secondary coverage through the town's health insurance plan.
Even in towns that had promised to pay for health care coverage long ago, there's no financial safety net for current taxpayers. So in Wheeling -- which offered free individual health insurance coverage to retired employees in the 1970s as long as they worked at least eight years -- taxpayers of today are still subsidizing that promise. In 2013, that cost nearly $1 million for the 84 retired Wheeling workers receiving health insurance coverage through the village.
"We have some (eligible) employees who have not yet retired," said Wheeling Finance Director Michael Mondschain. "Not a lot, but a handful."
Wheeling stopped promising free health insurance coverage in retirement in 1981.
But some towns still offer the benefit to certain employee groups, like police and firefighters.
At $6,116,378, Aurora had the largest "post-employment benefit" burden of the 57 suburbs analyzed. That's because its 475 participating retirees "contribute 20 percent to 29 percent" of the premium and "the city contributes the remainder," according to the city's 2013 Comprehensive Annual Financial Report.
Aurora also leads the suburban pack with more than $176 million in unfunded obligations, or the estimated future expense of providing health insurance coverage to all retirees and current employees.
Second is tiny Rosemont, which has more than $79 million in unfunded obligations, mainly because of its large police and fire department staffs.
"Unfortunately, taxpayers have not been told how much these costs are," Weinberg said.
Wheeling is carrying an unfunded liability of more than $19 million because of the promises made to employees there more than 40 years ago.
Experts argue that municipalities should be saving now for future costs, like pension obligations that are prefunded through investment and savings initiatives.
"That's so the current generation is not over- or undercharged," said Alex Brown, research manager at the National Association of State Retirement Administrators.
The Governmental Accounting Standards Board is requiring more detailed reporting of retiree health insurance costs of all taxing bodies. The potential future obligations now being reported in audits paint a bleak picture.
Actuarial estimates show these towns have more than $434 million in future health care cost obligations. That's up 20 percent from just five years ago.
Mondschain said saving for the future health insurance obligations would have prevented spending elsewhere.
"The village would love to be in the position to fund this and set aside the money for future costs, but with all the other budgetary issues, we just don't have the money for it," he said.
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