Detroit Manager Proposes Moving Retirees Off City’s Health Care

Detroit’s emergency manager has proposed moving non-Medicare-eligible retirees from the city-sponsored health plans to Obamacare's health insurance exchange.
By @FrederickReese |
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    With an increasing number of American cities struggling under increasing costs and shrinking tax rolls, many municipalities are seeking innovative ways to save money. Recently, Detroit’s emergency manager, Kevyn Orr, has proposed moving retirees who aren’t eligible for Medicare from city-sponsored health plans to the insurance exchange system created by President Obama’s health reform law. The exchanges will open for enrollment Oct. 1, and coverage will start Jan. 1.

    Orr has also proposed that Medicare-eligible retirees give up their current coverage plans and switch to Medicare.

    Detroit joins Chicago in proposing that the financial burden of their retiree health care obligations be absorbed by the insurance exchanges. The idea is a growing trend among many city governments, despite the fact that the cities would still be on the line to subsidize coverage.

    “Cities and towns will be looking at ways to reduce those costs, and the exchanges may provide a very viable mechanism,” said Neil Bomberg, program director at the National League of Cities.

    For Detroit, reducing or eliminating benefits for the city’s 30,000 employees and retirees is part of the emergency manager’s plan to resolve a $386 million budget deficit and pay off more than $17 billion in long-term debt. As of fiscal year 2012, the city spent $177.4 million insuring 19,389 retirees. Under a proposal submitted by Orr to the city’s unions, Detroit would pay between $100 and $250 per month to cover premiums or medical costs for employees and retirees enrolled in the health insurance exchanges. This would cost Detroit a minimum of $27.5 million per year.

    Similarly, Chicago is faced with municipal health care spending that topped $108.8 million in 2012 and could reach $540.7 million in 2023. The city has already moved to cut all health care benefits for retirees by 2017, a move seen previously in cities such as San Jose and San Diego. The exchanges offer a safety net.

    “The retirement health-care system as it stands today is fiscally unsustainable, and we have a responsibility to ensure a secure financial path for Chicago taxpayers,” said Kathleen Strand, a spokeswoman for Mayor Rahm Emanuel. “The mayor also wants to ensure our retirees, who served this city honorably, have access to health care.”


    The ACA and the ‘safety net’

    According to the Congressional Budget Office, coverage for the 8 million people expected to enroll in the health exchanges is expected to cost taxpayers about $29 billion in the 2014 fiscal year. This number will nearly double by 2015, and will reach $129 billion by 2022. As of fiscal year 2009, the 61 largest cities in the United States only contributed 6 percent of the retiree health care liabilities in this country. As budgets become tighter, this number is expected to steadily drop, increasing the burden on Medicare and the public health care exchange system.

    “One of the unintended consequences of the Affordable Care Act may be that it created new classes of the uninsured,” said Timothy Finnell, the founder of Group Benefits LLC. Finnell is the first person to become a certified “healthcare reform specialist.” Finnell argued that the health reform law may offer public and private employers a means to abandon their health benefits plans for retirees, with the understanding that there is now a “safety net.” This may actually serve to increase the number of uninsured in the United States, instead of decrease the number.

    This “safety net” would, however, force most retirees to make do with less. With a lower percentage of health care dollars being used for actual care and with stricter restrictions, most health exchange plans would offer less than privately available plans. Finnell also pointed out that the exchanges are expected to attract a “dirty pool of people,” who are less healthy than the general population in general, so individual rates on the exchange will be higher than individual rates obtained through group insurance.

    According to an analysis of the insurance exchanges by Louise Radnofsky of The Wall Street Journal, “For a 40-year-old single nonsmoker, a ‘bronze’ plan covering about 60% of medical costs will be available for about $200 a month in most places, the [insurers’] proposals show.” The cheapest insurance plan she could find for a 40-year-old on eHealth, an electronic insurance broker, was $63 a month. The exchange’s rates is 206 percent of the private rate.


    Obligations and expectations

    More to the point, many employees and retirees feel that their health care packages were promised to them.

    “It’s convenient to say, ‘Well, they can go out and get coverage in the health insurance marketplace,’” said Steven Kreisberg, director for collective bargaining and health care policy for the American Federation of State, County and Municipal Employees. “The moral obligation to the workforce remains.”

    Moving municipal retirees onto the exchanges may create a multitude of problems. Many of the retirees may not be eligible for a subsidy and will not be able to afford the premiums. In addition, many retired public employees, such as retirees from the Detroit police and fire departments, did not contribute to the Social Security system, with those hired before 1986 exempt from contributions to Medicare. For these retirees, their retirement packages were supposed to compensate for these shortcomings.

    “Imagine if they said tomorrow your Social Security, your Medicare is going away and you’re going on Obamacare,” former Detroit police officer John Day said in an interview to Bloomberg. “How would you feel?”

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