Healthcare liability ‘significant’

One major defect that has led auditors in the Cayman Islands to disclaim government’s entire public sector financial statements for three consecutive years involves a failure to produce estimates for what is known as post-retirement healthcare liability.

Finance Minister Marco Archer said last week that the government is obligated to provide civil service retirees, veterans and seamen a certain level of healthcare benefits during their later years when they are no longer working. The liability figure represents what government is expected to pay over a 20-year period for these healthcare services, which include, to some extent, payment amounts to current civil servants whose retirements are expected during the period.

The last known evaluation of post-retirement healthcare costs, which was done in 2004, estimated the liabilities at US$798 million. Mr. Archer stressed last week during a statement in the Legislative Assembly that those costs are estimated over a 20-year period and are not something Cayman’s government must pay in the short term.

Yearly costs for retirees’ healthcare are included in each government ministry or portfolio’s annual budget.

Without the figures for the healthcare liability, Auditor General Alastair Swarbrick’s office cannot determine the extent of the obligation due to retirees over the 20-year period. Mr. Archer said that situation is about to change.

The finance minister confirmed Friday that government has now received a recent valuation of the healthcare liabilities which he intends to make public in the next few weeks.

“[The figure is] derived by computing the value of healthcare costs over the period of [the retirees’] life expectancy,” Mr. Archer said. “The total amount is represented at today’s value.

“It is important that the public understands that post-retirement healthcare liability figure that is given is not an amount that the government is obligated to pay immediately.”

Mr. Archer said proposed changes to the Cayman Islands retirement age, expected to take place in 2016, will push the mandatory retirement age for civil servants from 60 to 65, which would “significantly reduce the post-retirement healthcare liability amount.”

The Cayman Islands is required to publish reports on all contingent and actual liabilities – including those in the public pensions and healthcare systems – under the Framework for Fiscal Responsibility agreement with the United Kingdom government.

In addition, the framework requires Cayman’s government to state what it is going to do to address the projected shortfalls.

“Government will publish its proposals to address the results of the assessments no later than the budget following the receipt of the actuarial assessment,” the U.K. framework proposal reads. For instance, if an actuarial evaluation were to be completed as of Jan. 1, 2015, the local government would have to include proposals to address it in the 2015/16 budget, which is due on June 30, 2015.

The pensions’ liability figure is already included in the annual government budget. However, healthcare liabilities, which haven’t been calculated in a decade, are not.

If included in the spending plan, those figures would have a major impact on the Cayman Islands government net worth, dropping it into negative territory, depending on which calculations were used.

2 COMMENTS

  1. There are five key elements to this that should scare everyone greatly.

    1. The size of the liability- 798m USD (665m KYD) estimated back in 2004 (Shaw Miller). Using a healthcare inflation rate of 5 percent that would place that amount at 1.24b (USD) if paid in full today.

    2.2004 is before the great expansion of the civil service and a 5 percent healthcare inflation rate is light (Big 4 audit firms are currently using a rate closer to 8 percent). In short 1.24b for this purpose is under valuing the liability.

    3.The government response- (It is important that the public understands that post-retirement healthcare liability figure that is given is not an amount that the government is obligated to pay immediately.) 1.24b over 20 years = 62m per year or another 10 percent of the govt total expenses. Where is that additional money going to come from??? Giving the appearance that we should not be at all concerned now as the future generation will have to make good on this later- Some of us are greatly concerned today even if govt is not.

    4.Mr. Archer indicates that updated information has been obtained and will be published soon. I sincerely hope that there is full disclosure and most importantly that the analysis has been done by an INDEPENDENT reputable firm as the government is not at all independent in projecting what, we, the taxpayer will have to pay on their behalf during their retirement.

    5.To date NOTHING has been reserved for the single largest expense of the country.

  2. If that is the bill for Healthcare, what is the pensions liability like!

    The government ministers always seem to pander to the needs of the civil service – it is seen as a large bloc of the voting public – untouchable if an MLA’s re-election is high on their thinly veiled agenda?

    They must remember that the non civil service bloc is much bigger and there is a tipping point when they WILL hold the MLA’s responsible for the waste and inefficiency of an oversized public sector.

    That waste manifests itself in the power bills, the grocery basket, the fuel pump – in short, the high cost of everyday living for everyone.

    I suspect the cuts in the public sector will not be resisted anywhere as much as expected when the staff work out that it is down to a choice between keeping their benefits or keeping extra layers of middle management.

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