If nothing changes, the Cayman Islands government estimates it will need an additional CI$1.18 billion over the next 20 to 25 years – estimated at current monetary value – to meet healthcare costs for retired civil servants, seamen and veterans.
The unfunded liability for post-retirement healthcare costs, the first the government has produced in 10 years, was revealed Wednesday in the Legislative Assembly by Finance Minister Marco Archer.
Figures from 2004 put the unfunded healthcare liability at US$798 million (CI$654 million), thus the projected liability has come close to doubling in the past decade.
Money not owed immediately
Mr. Archer said Wednesday that he realized the huge liability figure would lead to “sensational” reports, but cautioned that the estimate does not represent money owed immediately and that it would only come due in the future if Cayman “does nothing” about the current situation with its public service health insurance.
“This government will not bury its head in the sand and pretend [the healthcare liability] does not exist,” Mr. Archer said. “It was not a problem that was created overnight and its solution will not be found overnight.”
Addressing the unfunded liability in both the public healthcare system and the public retirement system will be key to making sure the government maintains a positive net worth, Mr. Archer said. Current projections are that Cayman will have a net worth of $1.94 billion by mid-2018. However, that does not include the potential impact of the unfunded healthcare liabilities.
If the $1.18 billion healthcare liability is subtracted from the government’s net worth, Cayman’s public sector would lose the majority of its measurable worth.
Financial Secretary Ken Jefferson has previously argued against including the healthcare liabilities in the net worth calculation, stating that larger governments like the U.S., U.K. and Canada do not do so now. Mr. Archer said Wednesday that discussions are continuing on that point.
The Cayman Islands 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 specified period for these healthcare services, which include, to some extent, payments to current civil servants whose retirements are expected during the period.
“[The figure is] derived by computing the value of healthcare costs over the period of [the retirees’] life expectancy,” Mr. Archer said recently. “The total amount is represented at today’s value.
“It is important that the public understands that the 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 will “significantly reduce the post-retirement healthcare liability amount.”
The finance minister was silent on other options government might consider to reduce future healthcare liabilities. However, a recent government consultant’s report suggested measures such as requiring that civil servants co-pay healthcare premiums or even privatizing some health services now provided by the government in attempts to reduce costs.
Mr. Archer said there would be public discussions and consultations about any changes in government’s healthcare policies prior to their implementation.
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.