Stockton, CA has been in the news recently as a Federal Judge ruled Monday, April 1, that it is eligible for bankruptcy protection. At first glance, this ruling seems to have little to do with the future of healthcare in the United States. Upon closer inspection, however, what stands out is the City’s #1 creditor, the California Public Employees Retirement system, (CalPERS).

The $900 million that the City owes CalPERS presents a common theme among municipalities and states across the country. Funding of retiree benefits is rapidly consuming larger portions of public entity budgets. The City of Detroit, having recently had an emergency manager appointed to oversee the City’s fiscal woes, is facing some tough choices. As a greater percentage of the City’s revenue is being spent for retiree benefits, there is much less available for basic public expenditures such as fire and police protection.  

This brings us to the effect this has on the cost of healthcare. The accurate calculation for each additional employee a healthcare provider employs does not stop with the immediate calculation of the present day expense associated with the time that is being expended by the worker. This calculation must also accrue for items that do not require immediate cash but are accounting entries for payments to be made at a future date, most often represented by retirement plans.

The major tenet of The Affordable Care Act is cost containment. This constraint will significantly impact human resource decisions in the near future. Number crunchers in both for-profit and not-for-profit entities will take a close look at their total HR spend. Adding increased long-term liabilities with each new employee will make contracted labor a very attractive part of the HR mix.  Contract labor has always been the “go-to” model in times of uncertainty, or sudden census flux. There is reason to believe this segment will grow significantly as healthcare providers seek to find the right “balance” and minimize long term liabilities.