As Detroit Faces Bankruptcy, Obamacare May Help Cut Down On Health Costs

CREDIT: Associated Press

Detroit, the largest U.S. city to declare bankruptcy, owes $5.7 billion in outstanding health costs for retired residents. But, thanks to the health reform law, city officials may be able to significantly cut those costs.

As city officials work on a plan to restructure Detroit’s finances, which involves cutting tens of millions of dollars in health costs, they’re realizing that some Obamacare provisions can help them achieve those financial goals. Specifically, Detroit could stop providing city-run coverage for many older residents who are too young to qualify for Medicare coverage, since those people will be able to access health insurance in Obamacare’s new insurance marketplaces. That would shift some of those health costs onto the federal government.

“The Affordable Care Act does change the possibilities here dramatically,” Neil Bomberg, a program director at the National League of Cities, explained to the New York Times. “It offers a very high-quality, potentially very affordable way to get people into health care without the burden falling back onto the city and town.”

And Detroit isn’t the first city to consider this option for retired city employees. Similar proposals are also underway in Chicago, a Wisconsin county, and a California county. The effort to shift costs to Obamacare’s marketplaces comes in response to a growing crisis among cities’ retiree health plans, as many municipal governments are leaving those plans unfunded. A recent Pew Charitable Trusts study found that 61 major U.S. cities have a staggering $126 billion in retiree health costs, and they don’t know where 94 percent of that money is going to come from.

In Chicago — where officials plan to shift some of the city’s 11,800 retirees and their family members out of city coverage by 2017 — some employees are resistant to the idea that they won’t receive the city-run health plans they were promised. Many city plans have generous benefits, covering more than 80 percent of beneficiaries’ health costs, and public sector workers don’t want to lose the security they assumed they would have when they retired. “There’s fear and panic about what this means,” Michael Underwood, who retired from the Chicago Police Department after 30 years of service, told the New York Times.

But, if retirees are shifted onto the plans in Obamacare’s marketplaces, some of them could actually end up spending less on their health care than they would have under city-run insurance plans. Across the country, a growing number of states are reporting that Obamacare premiums will be lower than expected — and, in some cases, drastically lower than what state residents are currently paying.

The additional options under the health reform law are welcome news for many city officials who are struggling to figure out how to accommodate a ballooning pool of retirees as the Baby Boomer generation ages. Detroit currently has more than 19,000 retirees, which us almost double the number of people who currently work for the city, and 7,500 of them are too young to qualify for Medicare. If Detroit’s plan is approved by a bankruptcy judge, other cities may follow its lead.

“I’m applauding Detroit,” Dan Miller, the controller in Harrisburg, PA — another city that’s potentially on the brink of bankruptcysaid. “I’m hoping that Obamacare turns out to be a great solution, and I would love for our city to have the opportunity to do that.”

That solution may not be perfect, however. If multiple cities end up shifting huge numbers of older and sicker residents onto Obamacare’s new health plans, that influx may disrupt the risk pools in their state-level marketplaces. In order to contain costs overall, Obamacare’s marketplaces will need to include the right balance of younger and healthier Americans whose health care tends to be cheaper.