The country’s unfunded healthcare liability, now estimated at $1.7 billion for retiring and retired public employees, is an aneurysm that is going to burst.
On the front page of today’s Compass, economics writer Michael Klein offers up this bitter pill (not the sugar-coated prescriptions of politicians):
“The biggest financial threat to government comes from the liability that arises from the obligation to provide civil service retirees, veterans and seamen with healthcare benefits during their retirement.”
Here’s a fair question: Why are you hearing this news from the Compass rather than the Cayman Islands government? Has any candidate highlighted this issue in his or her campaign?
(To be fair and to give credit, Minister of Finance Marco Archer has urged that these dire forecasts be made public. However, his is a lone and lonely voice.)
Consider this: From 2004 to 2014, there was no audit or public accounting whatsoever of Cayman’s massive, and growing, public healthcare liability. In 2004, the shortfall was estimated at $654 million, and then there was “radio silence” for a decade.
In 2014, the estimate had risen to $1.2 billion. A mere two years later, Cayman had added another $500 million to our healthcare obligation.
According to one tally, the Cayman Islands should be setting aside $120 million each and every year to service this ballooning liability, which will come due progressively (not all at once) over the next 20 years.
We aren’t doing that. In fact, according to a recent government report, “For all intents and purposes, the government is on a ‘pay-as-you-go’ plan in respect of post-retirement healthcare liabilities. Currently, no long-term assets have been established to start offsetting the government’s post-retirement healthcare liability.” (This might be a good time to note that the public sector pension fund is also underfunded by approximately $220 million.)
Make no mistake: Healthcare and pension liabilities, left unattended and untreated, kill economies, private enterprises – and countries. Expanding balloons, filled with promissory notes or hot air (really the same thing), do what aneurysms do: They eventually explode.
How, you might ask, did Cayman find itself in these circumstances? The answer can be as complex as an economist, accountant or politician wants to make it, but the straightforward explanation is this:
In the last 20 years, the public sector (meaning the civil service, authorities and government-owned businesses) expanded far out of proportion to the growth of the population. We currently have 6,500 administrators and staff on the public payroll.
Government employee compensation, both salaries and benefits (healthcare and pensions, in particular), was overly generous compared to the private sector, thus “unbalancing” a supply and-demand, market-based, economy.
Politicians hoping to gain, or remain, in office had every incentive to expand and enrich government workers, since collectively, this segment of the population constitutes the country’s largest voting block.
The promises, especially regarding retirement benefits, were made (and continue to be made) far in advance of when the payouts become due.
Every government employee should be asking every candidate running in their districts what they intend to do about funding their promised retirement benefits.
Regardless of what they hear in response, they would be well-advised to take ownership of their own (and their family’s) future. A good place to start would be a thorough examination – both physical and fiscal.