IRS rules clearly provide that BENEFITS received are taxable as income unless the employee pays for the premium, so I'm going to assume there are a set of arcane rules that determine the break points where IRS automatically deems the premium to have been paid by the employees.
So maybe you can enlighten us on these matters.
I'd years ago figured out that state employee salary and benefit schedules were so divergent from jobs in the private sector for some taxable reason ~ and with competition being among states for this class of employee, they should all be doing something similar. So here we find the states all doing the same thing, and it's even different from the federal government ~ (which I know all about having dealt with that system for decades).
When it comes to benefits, it's in the Sec. 125 law. Particularly to how it defines what a benefit is. See the section on cafeteria plans. Also see the section of benefits in regards to collective bargaining agreements. But also think about how states and the fed government get revenue.
But basically you're confusing what pre-tax (Sec. 125) and post tax - (everything else) and employer contributions and how that effects your income for tax puposes - With how a state gov't operates as an employer.
Couple of different things there. If the benefit is paid pre-tax all Benefits are taxed on receipt EXCEPT health insurance. You're recieving a service instead of a monetary benefit like life insurance or short term disability. Gov't is getting their taxes off the transactions of the health insurance carrier and providers and all the ins and outs of the medical care businesss. Whatever State Rules apply to those benfits as well-Varies by the state. A rule of thumb here is helpful to readers on Sec. 125 plans. If the Benefit is taken PRE-Tax and the benefit is paid direct to you...you pay taxes on the benefit. If a benefit is paid with after-tax dollars and is paid directly to you, the benefit is not taxed. Again, except for health insurance. Doesn't matter if you buy insurance with pre or post tax dollars, you're not taxed on the actual value of what that service costs. There are a few other IRS laws that apply to medical services in regards to insurance (mainly to your benefit)...but not cash payments to you.
As an employer, you don't get taxed on the portions of the premium you pay for your employees, so you lower your taxable income as an employer. That will be decided by the employer and the carrier to the amounts and employer can and is willing to pay. But enough on Sec. 125.
The crux is a State gov't isn't a normal employer. It pays salaries with tax revenue, I don't believe soveriegn states pay a tax on the taxes they take to the feds. The feds gets their money from the citizens directly themselves. Even the state employees pay taxes, because that is then income. There's a whole philosophical argument to why gov't employees pay taxes at all...but that's a discussion for another night. So state employees still pay their normal taxes on their income.
So basically to a state government, there is no tax reasoning for the amounts it will pay to the employees benefits or in collective bargaining agreements. They aren't bound by the same business rules as well...a business. They pay salaries based on what the unions can suck out of them. It's all about what agreement they've reached. What's paying those premiums for state employees is you. It all depends on what deal the politicians struck. Which as you can see with what we got going on here, were some pretty bad deals. It sounds like you're looking at a state like a business, which it ain't in no way, shape, or form. Other than they both have revenue and expenditures.