Shedding OPEB Through ObamaCare

There is plenty to write about within the broad subject of municipal finance, pension obligations, and “Other Post Employment Benefits”(OPEB), which are primarily health care costs for retirees. While pension costs have at least (nominally in many cases)been addressed by creating “full funding” schedules that attempt to solve the problem of huge unfunded pension liabilities, OPEB remains an actuarial nightmare, with billions in unfunded liability now on the books due to the health care commitments made to municipal and state retirees. In all of the highly distressed cities we have written about in the last week the unfunded OPEB liabilities have become a huge issue. They now take center stage in Chicago, where Mayor Rahm Emanuel is looking to shed those costs entirely by moving retirees into ObamaCare. From the Chicago Tribune:

Mayor Rahm Emanuel plans to start reducing health insurance coverage next year for more than 30,000 retired city workers and begin shifting them to President Barack Obama’s new federal system.

The move is aimed at saving the city money and comes as the Emanuel administration has been trying to wrangle significant pension cost concessions from employee unions.

The details are found in a letter the city plans to send to retirees this week.

Still getting health insurance: Police officers and firefighters who retired between the ages of 55 and 64 and are not yet eligible for Medicare but whose coverage is guaranteed under union contracts, as well as workers who retired before August 1989 and are protected by a legal settlement.

Cut out as of Jan. 1 will be the rest. That’s when the city will begin a three-year phase out of the coverage, according to the letter signed by Comptroller Amer Ahmad. During that period, premiums, deductibles and benefits could change, the letter states.

Once the phase-out is complete, those retired workers would have to pay for their own health insurance or get subsidizes under the Affordable Care Act, known as Obamacare. The city-subsidized coverage is particularly important to retired workers who aren’t yet eligible for Medicare, as opposed to those 65 or older who use the subsidies for Medicare supplemental insurance.

Chicago is faced with some numbers that are staggering for retiree health care. They have made some pretty poor labor deals, in particular with public safety unions, that have made the situation worse. The bill for Chicago this year was $109 million for retiree health care, with a projection that the number would balloon to over $540 million within ten years. The Tribune story also pointed to the City’s four pension funds having an unfunded liability of $20 billion, but that is a story for another day, as the Mayor is waging another battle with labor over that issue. Labor pushed back on the Mayor, who certainly is not on the Christmas Card list of Chicago’s unions these days.

Chicago Fraternal Order of Police First Vice President Bill Dougherty said the city’s projections for future cost of health care are too high.

Dougherty called the mayor’s plan “a poor decision” and suggested that it should in no way be linked to negotiatoins over pension changes. “The mayor has shown that he likes to play games on different levels, and we’re not interested in doing that,” Dougherty said.

Will movement of municipal employees and retirees to ObamaCare become a tool for mayors to shed costs, and large future liabilities? Mayor Emanuel has made the first move. Will others follow? A link to the Chicago study of retiree health care is below, and that report is the basis of the move by the Mayor.

Chicago Retiree Health Care Commission Findings and Recommendations.

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