Chicago will phase out its 55 percent subsidy for retiree health care by January 2017 but continue that coverage for the oldest retirees, under a mayoral plan that will free taxpayers from a $108.7 million a year burden. Thirty thousand retired city employees will be forced to switch to Obamacare.
“With an increasing retiree population, earlier retirement ages and longer life spans, the ability of the city to continue to provide these benefits is totally untenable,” City Comptroller Amer Ahmad told the Chicago Sun-Times on Tuesday.
“It’s far too expensive and could have an adverse impact on our credit worthiness and add a significant long-term liability to the city’s financials,” he said. “This is just a number that continues to grow over the years. We have to be financially responsible.”
More than 35,000 government retirees have been on pins and needles waiting to find out whether Mayor Rahm Emanuel will continue their city-subsidized health insurance after June 30, when a 10-year settlement agreement that calls for the city to share costs with retirees is due to expire.
They are not likely to be relieved when they find out how Emanuel has decided to resolve the politically volatile issue.
Ahmad disclosed Tuesday that the mayor has decided to extend the 55 percent subsidy for six months — until Jan. 1 — then phase it out for 30,000 retirees over the next three years after giving Obamacare a chance to shake out.
But 5,500 of the oldest and most vulnerable retirees — known in the marathon litigation as the “Korshak class” — will be guaranteed a 55 percent subsidy as long as they live. They retired before Aug. 23, 1989. Specifics of the three-year phaseout for the remaining retirees will be unveiled by the end of the year.
“The mayor was very clear about that. He wanted to protect that group of people. They are the oldest and most vulnerable. They have the lowest annuities. They never paid into Medicare. They likely have no other options,” Ahmad said. “It’s the opposite of throwing them to the wolves. We are making a renewed commitment to serving them for life. Those people should be rejoicing. For everybody else, they were worried we were gonna dump them onto some Obamacare thing we didn’t know anything about. But we’re extending the current coverage until the beginning of 2014, then spending three years transitioning to figure out the rules.”
Civic Federation President Laurence Msall said the three-year phaseout represents a “bold and economically understandable” move by a mayor with no shortage of hot potatoes on his plate.
“The city faces billions of dollars in unfunded pension liabilities, growing debt-service obligations and a demand for public services that far outstretch reasonable revenue projections. If they don’t dramatically reduce retiree health-care costs, they’d be forced to cut existing services or raise taxes. But they’ll likely need to raise taxes to maintain services and keep pensions solvent even after reforms are passed,” Msall said.
“By taking advantage of the Affordable Care Act, which guarantees city retirees access to health care regardless of pre-existing conditions and includes subsidies for lower-income individuals, the city is freeing itself from $540 million in future costs by 2018,” Msall said.
The City Council approved the existing retiree health-care settlement and must approve any changes. Aldermen already on the hot seat to approve Emanuel’s controversial parking meter changes are certain to get an earful from thousands of frightened retirees.
But, Msall said, “Aldermen who don’t support the move to eliminate this benefit need to be prepared to articulate where they would find the money to continue providing this benefit and justify why they wouldn’t take advantage of the federal act and its guaranteed access to health insurance.”
Chicago’s pension and retiree health-care crises are inextricably linked, because underfunded city pension funds now contribute 13 percent to retiree health care. Chicago taxpayers contribute 55 percent and retirees pay 32 percent.
Four months ago, Emanuel’s handpicked Retiree Health Care Commission recommended painful solutions that ranged from sharply higher employee contributions and reduced city subsidies to forcing retirees to fend for themselves under Obamacare. The explosive report cited a series of factors that demanded a solution to the $108.7 million a year burden on Chicago taxpayers: a rising number of retirees; longer life spans; a shrinking city payroll, and a financial squeeze on the city’s corporate fund that threatens the city’s bond rating.
The annual costs do not include police and fire early retirees, who receive free health care under the active employee benefit plan until they become eligible for Medicare.
Although the Civic Federation supports the three-year phaseout, Msall warned that “uncertainty” surrounds Obamacare in Illinois and elsewhere. The transition needs to be “monitored to protect seamless coverage” for city retirees.
“That’s a very appropriate role for the City Council — to fully understand details of the phaseout plan and advocate on behalf of not just retirees but city taxpayers,” he said.