The state has set aside nothing to pay for retiree health benefits for its aging public workers over the next three decades, leaving future taxpayers on the hook for the estimated $10.8 billion cost.

"There’s just no money — the liability for the state is so huge," said Barbara Annis, administrative service officer of the state Department of Budget and Finance and a trustee for the Hawaii Employer-Union Health Benefits Trust Fund, which oversees health benefits for state and county workers and retirees. "That liability, especially if we don’t contribute, will undoubtedly just get larger."

As Hawaii’s baby boomers start reaching retirement age, the state’s lack of a plan to pay for health benefits for government retirees is leaving workers and taxpayers with a sinking feeling.

By one projection, EUTF’s annual benefit payments will soar to $692.8 million in 2022 from $276.1 million in 2008. Using July 2007 data, AON Consulting compiled a report for EUTF that estimated the state’s total unfunded liability over the next three decades will reach $10.8 billion.

Hawaii’s financial obligation for active and retired workers and their dependents was the second-highest per capita in the nation at $7,636 in 2006, according to a 2009 report by the Center for State & Local Government Excellence, a Washington nonpartisan research group focusing on the effect of aging public workers. The EUTF covers 169,000 active and retired workers and their dependents.

Hilo resident Yolanda Keehne, 56, a secretary for the University of Hawaii-Hilo Natural Sciences Division, is worried that the state may not have the money to pay for retiree health benefits, jeopardizing her long-term security.

"It’s very scary because it affects every taxpayer and in addition to that they keep wanting to reduce our benefits," she said. "Right now, they may say you have this coverage when you retire, but there’s no guarantee, so it’s very troubling."

By contrast, the counties have started to put away money to reduce the significant burden on taxpayers in the future. As of June 30, 2009, cumulative pre-funding contributions totaled $93.7 million from the Honolulu Board of Water Supply; County of Hawaii; County of Maui; County of Kauai, including the Department of Water; Hawaii County Board of Water Supply and the City and County of Honolulu, a financial audit report shows.

The state is on a pay-as-you-go system, with the liability funded each year through a legislative appropriation. There is no law that requires government employers to fund in advance the future expense, but some say it is the sensible thing to do.

"The state has really been irresponsible in that regard," said Jim Williams, former EUTF administrator. "When your accountant says you’ve got this unfunded liability that you’re eventually going to have to pay, it seems to me it’s prudent to start putting money away."

But that is not often the reality for state government or individuals who typically pay bills as they come due, said state Rep. Karl Rhoads, chairman of the House Labor & Public Employment Committee.

"It will be expensive and we do need to plan for how we’re going to deal with it when the baby boomers all retire," he said. "There’s going to be a lot of retirees and we’re all living longer these days."

Esther Ueda, a former state Land Use Commission employee, is thankful to have health benefits that many of her private sector counterparts do not. But the 67-year-old retiree is uneasy about whether the state will continue to pay 100 percent of her medical premium as she ages.

"As an employee I just sort of counted on this benefit when I retired, and incorporated it into my retirement planning process," she said. "As more people retire I’m concerned about the state’s ability to fund health benefits and that at one point we’ll be asked to contribute."

The state pays 100 percent of medical premiums for nearly all of its retirees, but in recent years changed the rules to increase the time an employee is required to work in an effort to control escalating costs. The state also reimburses retirees for premium expenses, which are around $100 a month, for a Medicare program covering doctor visits among other medical benefits.

"On one hand the Legislature did take positive action to control future retiree costs," Williams said. "What they haven’t done — the Legislature and (Lingle) administration — is take care of funding those future costs that are remaining."

Rhoads said if he is still chairman of the House Labor Committee next session, he will review the issue of retiree health benefit costs, but was unsure it would take precedence among his colleagues.

Public health benefits aren’t the only costs that will soar as the baby boomer generation reach their twilight years.

Escalating employer-sponsored health insurance costs could further cripple Hawaii’s working population, who will likely pay higher taxes to support the growing retiree pool.

By 2016, Hawaii’s family health insurance costs are projected to jump 77 percent to $16,679 compared with $9,426 in 2006, and consume 23 percent of the projected median family income of $73,513, according to an outlook by Washington, D.C.-based New America Foundation, a nonpartisan public policy institute. The outlook, based on 2004 statistics, doesn’t factor in the effects of health care reform on medical insurance costs.

"We have an aging population and even if we are more effective in treating them there will be that fact that sheer numbers are going to affect the cost," said Peter Sybinsky, president and chief executive officer of Hawaii Health Information Corp.

The high costs of chronic diseases typically associated with age are expected to rise further as the population ages.

The number of cardiovascular disease-associated hospital discharges in Hawaii has remained steady at between 17,000 and 18,000 for more than a decade. However, costs have doubled to $700 million in 2009 from $350 million in 1995, according to state Department of Health data.

"We’re going to continue to see these massive increases in costs," said Ann Pobutsky, a department research analyst.

Hawaii’s personal health costs generally follow the nation’s, which has been nearly doubling every 10 years, said John Rother, AARP executive vice president of policy, strategy and international affairs.

The national rate of personal health spending is expected to total $13,101 in 2017, up from $7,868 in 2008, he said.

In addition, the issue of paying for long-term care, which is not covered by Medicare, will be paramount. The cost of long-term care in Hawaii is significantly higher than national averages.

The price of a private nursing home room last year was about $131,400, compared with the national average of $79,900, according to the MetLife Mature Market Institute.

"That’s what is scaring people in terms of affordability," Rother said. "If we’re looking out to 2030, what we really are looking at is pretty scary."

Gerard Russo, who specializes in health economics at the University of Hawaii, said as baby boomers reach their peak age the extreme pressure put on the Medicare and Medicaid system will result in reduced benefits or increased taxes over the next 20 years, two likely scenarios that will have an impact on all Hawaii residents.

"Both of those systems (Medicare and Medicaid) will be under financial stress," Russo said. "Something’s got to give — either raise taxes or cut benefits, there’s no way around it."