Michigan lawmakers resolved a financial problem that still threatens other states. Thanks to a long-term effort, they have set aside money to pay for the health insurance costs of retired public school employees, according to a recent actuarial valuation.

Funding retiree insurance costs is not a small feat. Unfunded benefits amount to a trillion-dollar problem in the rest of the country.

Every employee of a conventional public school and community college in Michigan is a mandatory participant in a state-managed pension system. In the system, the state offers to pay employees’ health insurance premiums after they retire. This is in addition to what they will get from Medicare. This can be especially expensive for early retirees. A full family plan for a year can cost the state government $20,000, and that’s not even half of the insurance premium.

Managing the costs of medical insurance for people no longer working has been a lingering problem for state governments. Instead of setting money aside to cover the costs of benefits after employees retire, lawmakers defer the payments. This puts a burden on future lawmakers to decide whether they will pay the benefits that had been offered, trim the benefits or try to prefund the costs that were deferred.

Michigan lawmakers deferred these costs for a long time. In 2011, state administrators expected that they would need $20 billion to cover the costs of the retiree health insurance. That was around as much as the state owed its bondholders, the people who willingly lent the state money.

Gov. Rick Snyder decided that he was going to stop putting off these costs. He offered new employees plans that didn’t kick costs to future taxpayers, lowering the expense to the state, and started to set money aside to pay for the remaining benefits.

The state now holds $14 billion in assets, and it expects that this is more than enough to cover the costs of its retiree medical insurance benefits into the future.

That Michigan lawmakers have saved enough to pay these costs is impressive. States across the country have kicked the responsibility for retiree medical costs to future lawmakers and taxpayers. Deferment is a problem in every state.

Snyder deserves credit for addressing this financial burden. Credit is also due to legislators for going along with it and to policymakers afterward who continued to set money aside.

This puts the state in a better position. Lawmakers don’t need to put more taxpayer cash into the funds when investment gains are sufficient to pay for benefits. Saving enough to cover retiree medical insurance costs means that lawmakers have freed up those savings and spent it on their other priorities.

Pensioners are also spared the threat that lawmakers might cut their benefits. The benefits are optional, and lawmakers could exercise their options when costs keep increasing. Adequate savings ensure that coverage continues.

Elected officials often find it easier to defer financial problems than to address them. It is nice to see Michigan lawmakers practice prudence and to have their diligence pay off.

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