BOSTON — Big Tobacco lawsuit payments would be tapped to help pay for $13.3 billion in health care benefits the state promised future state retirees but does not have the money for, according to a report a blue-ribbon panel will release today.
Taxpayers' money and annual budget surpluses also should be used, according to the report, to deal with the problem estimated to cost almost as much as the Big Dig.
Rep. Jay Kaufman, co-chairman of the commission, called the report a "serious response" to a vexing problem.
"We're looking this problem squarely in the eye," said Kaufman, D-Lexington, "not wishing it away or pretending it does not exist."
In addition to Kaufman, members of the special commission included Gov. Deval Patrick's budget chief, Leslie Kirwan, Treasurer Timothy Cahill, state pension board Executive Director Michael Travaglini and the chairmen of the Legislature's Ways and Means committees, Sen. Steven Panagiotakos, D-Lowell, and Rep. Robert DeLeo, D-Winthrop.
In all, the commission made three recommendations on how to close a $13.3 billion unfunded health care liability by 2038:
r Over five years, the state would channel an increasing amount of the tobacco settlement money until 90 percent of the annual award, $263 million, would go into a trust fund the state would invest. Tobacco companies pay the state about $290 million a year for 25 years, and then will make an unspecified payment annually.
Tobacco companies settled a lawsuit brought by 46 state attorneys general over the role cigarettes and other tobacco products had in driving up health care costs. The tobacco companies settled the lawsuit in 1998 for $248 billion.
r Budget writers would agree to use half of all unanticipated surplus money that normally would go into the state's Rainy Day Fund.
r Lawmakers would commit to making annual taxpayer-funded appropriations in the budget, just as they do now to close a similar $14.5 billion unfunded pension liability.
The report doesn't say what the plan would cost the state each year. A top Kaufman aide said a number of factors, including when the state starts investing the money, would affect the bottom line.
By investing the money now, Kaufman said, the state can reduce its liability to $7.5 billion over the next 30 years.
"Our choices, sadly, are to find the wherewithal to do it or end up paying twice as much," Kaufman said.
The commission report comes nearly a year after The Eagle-Tribune series "Pension Tidal Wave" chronicled a public pension system plagued by favoritism and shortsightedness.
Poor planning resulted in Massachusetts, like other states, paying for future retirees' health care benefits out of pocket on a "pay as you go" basis, rather than investing for the long term.
The scope of the problem didn't become public until 2004, when the Governmental Accounting Standards Board required state governments to calculate their unfunded health care liabilities. Nationwide, the liability is estimated at more than $284 billion.
The state's unfunded health care liability is separate from its pension liability, which measures how much the state owes in pension benefits, not health care. That figure is about $14.5 billion, and the state already has a funding program in place to meet that obligation by 2023.
Not everyone welcomed the report's findings.
"I don't think they sat down and seriously thought of how to pay for these obligations," said Elizabeth Keating, a Boston College expert on health care finance.
Massachusetts already is spending the tobacco settlement money on smoking cessation programs and the state's landmark health care law.
"They're taking money for another use and putting it to other uses," Keating said.
Michael Widmer, president of the Massachusetts Taxpayers Foundation, called the report "a start," but said that "tough questions remain unanswered."
Among those is how the state can save money by trimming future retirees' health care packages.
"I agree (retirees' health care) should be funded," Widmer said. "But this is not a realistic recommendation."
Kaufman said another study commission should be established to examine the entire salary and benefits package enjoyed by state workers.
"We're going to have to have a very sober and sobering conversation on benefits going forward," Kaufman said.
The report also proposes legislation letting cities and towns invest for their unfunded health care obligations without legislative approval.
Kaufman said the report represents the start of real change.
"Business as usual just won't do," Kaufman said. "That needs to be the mantra."
