Obamacare Is Double Trouble for Detroit Retirees

Image: Obamacare Is Double Trouble for Detroit Retirees Detroit emergency manager Kevyn Orr.

Wednesday, 16 Oct 2013 11:42 AM


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The whole point of Obamacare was to make it easier for vulnerable Americans to obtain health coverage. But unless the federal insurance exchanges are fixed soon, the law might wallop some people at their most vulnerable moment: Detroit’s retirees.

Because of the city's bankruptcy, these former public employees are already on the hook for huge cuts to their meager annual pensions, which average about $20,000 for general workers and $40,000 for police and firefighters.

Now, Detroit’s emergency manager Kevyn Orr has announced that to return the city to solvency, effective Jan. 1, he will stop providing coverage to 8,000 retirees under the age of 65. Instead, they will receive a $125 monthly stipend to use toward private plans from the exchange. (Spouses and dependents don't get anything.) The hope was that Obamacare’s subsidies would kick in for unmarried retirees making from $11,490 to $45,960 and married retirees making from $15,000 and $62,040 annually, the cut-offs for eligibility.

The stipend combined with the subsidies would allow the city to slash its unfunded health-care liabilities -- which are about a third of its overall debt -- and most retirees to obtain coverage with minimal out-of-pocket expenses. It would be a win- win for all, except maybe for federal taxpayers, who would be on the hook for the Obamacare subsidies.

The hitch is that the Michigan exchange, like many of the 35 others run by the federal government after the states refused to build their own, has been beset by glitches. Enrolling has been a nightmare, although some reports suggest that “navigators” -- trained professionals who help consumers navigate the website -- have been having some luck in the last few days. Even if consumers manage to enroll, however, it’s unclear they will actually get coverage given that the exchange reportedly isn't providing accurate enrollment information to underwriters.

In the light of this, it isn't out of the realm of possibility that the Barack Obama administration might have to delay carrying out the law pending an overhaul of the exchange software platform.

Should that happen, Detroit retirees who have been kicked off the city’s coverage would have no option. They would have to join the ranks of the state’s 1.3 million uninsured. Unlike pensions, health-care benefits aren't protected by the Michigan constitution. Hence Orr doesn't have to go through formal bankruptcy court to restructure these liabilities and may be within his legal rights to wash his hands of them.

Yes, it may be hard to feel sorry for Detroit’s retirees given all the special benefits that they’ve received over the years, including an extra paycheck every year as a Christmas bonus and death benefits to ineligible families of workers. This largesse depleted the city’s pension funds and forced it into bankruptcy.

But union leaders misled rank-and-file retirees, pretending that they could rob their own future without suffering the consequences. Now the same retirees might find that Obamacare has misled them, too.

© Copyright 2014 Bloomberg News. All rights reserved.

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