Troubled Cities See Exchanges as Way to Unload Retirees

NCPA July 8, 2013

Detroit is facing bankruptcy and Chicago wants to cut retiree benefit costs. Both are turning to President Barack Obama's health care overhaul in what could become a road map for cash-strapped cities. The municipalities plan to end or limit health coverage for retirees under age 65 who don't yet qualify for Medicare, with the expectation they can get insurance in the exchanges opening January 1 under the Affordable Care Act, says Bloomberg.

With U.S. cities facing rising benefit costs and billions of dollars in unfunded liabilities, more municipalities will consider moving retirees off city rolls and into the exchanges, even if they continue to subsidize the coverage, says Neil Bomberg, a program director at the National League of Cities in Washington.

• Coverage for about 7 million people expected to enroll in health exchanges next year will cost U.S. taxpayers about $26 billion, the Congressional Budget Office says.
• That figure nearly doubles a year later, and exchange coverage is expected to total $1.1 trillion through 2023.

A spokeswoman for the agency said in an e-mail that it has no estimate of how many people in exchanges will be retirees.

• In Detroit, reducing benefits for 30,000 employees and retirees is part of Emergency Manager Kevyn Orr's plan to avoid the largest U.S. municipal bankruptcy by erasing a $386 million deficit and attacking a long-term debt of at least $17 billion.
• The city had 19,389 retirees eligible for health, life insurance and death benefits as of June 30, 2011, according to Orr's plan.
• The insurance benefits cost the city $177.4 million in fiscal 2012. Retirees contributed an additional $23.5 million.

Chicago plans to phase out retiree health coverage by the beginning of 2017. The city projects that health care spending would increase to $540.7 million in 2023 from $108.8 million in 2012 without changes.

Source: Mark Niquette and Alex Wayne, "Troubled Cities See Exchanges as Way to Unload Retirees," Bloomberg, July 1, 2013.