Management & Labor

Detroit, Chicago Stop Covering Retired Workers' Health Care

After much pushback from unions, big cities like Detroit and Chicago are now making their retired employees get health care on the exchanges or through spouses.
by | May 22, 2014
Representatives of Detroit's active and retired public workers waiting to meet with the restructuring team.
Representatives of Detroit's active and retired public workers waiting to meet with the restructuring team. AP/Paul Sancya
 

Before the health insurance marketplaces went online in October, a number of state and local governments considered the cost-saving measure of sending their employees and retirees to the exchanges instead of continuing to cover their health insurance. Much of the talk has been speculative, but a few cities are actually making moves -- at least where retirees are concerned.

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The exchanges have been an attractive option for many private-sector companies, but the public sector has been much slower to send employees or retirees to the exchanges for health insurance. It's a difficult balancing act that could present long-term cost savings for governments and employees but could also hurt recruitment and retention efforts.

In Detroit -- where retiree health care and benefit liabilities make up nearly half of the city's unsecured debt -- Emergency Manager Kevyn Orr fought hard for his proposal to send retirees to the exchanges for health insurance as part of the city's plan to exit bankruptcy. City retirees, backed by Detroit's largest union, sued to block the action in October. On top of that, the technical difficulties facing the exchange led Orr to delay the change from Jan. 1, 2014 to Jan. 31, 2014, at which point retirees would either have to enroll in Medicare or find their own coverage through the exchange.

Then on Jan. 31, the city reached an agreement with retirees to drop the lawsuit and provide $125 to $300 a month to retirees over age 65 who do not qualify for Medicare, $125 to spouses who aren't eligible for Medicare and who have a household income of less than $75,000, and $175 for retirees under age 65. In addition, a city-sponsored health insurance plan was created for those not eligible for Medicare, but anyone choosing to enroll would only receive a $100 per month contribution from the city. On March 1, the city stopped providing health insurance to retirees.

Because the city has so many retired employees with so many different health plans, it's difficult to offer precise predictions  on any personal or city-wide savings.

In Chicago, spurred by the end of a ten-year agreement that the city share health-care costs with retirees, Mayor Rahm Emmanuel is moving forward on a three-year phased-in plan to cut the health insurance subsidy for retirees from 55 percent to zero. Those who retired prior to August 23, 1989, and all police and firefighters, however, will keep their subsidies for their lifetime. Like in Detroit, approximately 30,000 retirees and their dependents will either have to get Medicare, seek coverage through a spouse or go to the exchanges for health insurance. The phased-in approach will be completed by 2016 and is expected to save the city $24 million this year.

In Sheboygan County, Wis., the County Board of Commissioners voted in October to stop covering retirees' health care and send them to the exchange starting Jan. 1, 2014.

The decision to move retirees to the exchange presented a challenge on a personal level for the county and its former employees, according to Human Resources Director Jean Gallimore. "They were very used to that one-on-one with the county being the employer."

But the county worked closely with retirees to help them through the transition. "We hand held them through the internal processes," she said. "We really educated our retirees … and made them feel comfortable that this is probably a very good choice." The county's health-care consultant met with every retired employee one-on-one to help them find an insurance plan that met their individual needs. In many cases, the retirees found that they could find a comparable benefit-level plan on the health exchange for less.

By December, according to Gallimore, a number of retirees were reportedly pleased with the transition and how it was handled. Of course, there are still a few resistant to the change and nervous about what it will mean for them in the long term.

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