Chicago and Memphis

January 31, 2013

The Wall Street Journal had an article recently that was very interesting. I have been wondering for some time how the Affordable Care Act (Obamacare) would affect public employees’ health care benefits. Well the article details some proposed changes by Chicago Mayor Rahm Emanuel. I can’t print the article without the WSJ’s permission but here is the essence of it.

  • The public service commission appointed by the Mayor was to study the cost of continuing health benefits for retired workers. A 25 year old legal settlement required the city and its pension funds to pay between 40% and 55% of most retirees’ health care costs. (MEMPHIS AND SHELBY COUNTY PAY 70% AND MLGW PAYS 75% OF RETIREES’ HEALTH CARE COSTS). This settlement agreement expires June 2013.
  • So what is the Mayor going to do? After all, the City is running a $370 million budget deficit which will expand in 2015 when a $1.2 billion balloon note comes due. The bill for retiree health benefits is $194 million this year and will grow to $540 million by 2023.
  • The answer, according to the public service commission, is to dump pre-Medicare retirees onto the state’s Obamacare exchange in 2014. Nearly 60% of retirees and 94% of those who receive subsidies would pay less for their health care on the exchange. Married retirees with dependents would save an average of $4300.
  • If this happens, who pays? You guessed it, you the national taxpayer. Federal subsidies for Chicago retirees would amount to $44 million in 2014 and increase as more workers retire in their early to mid 50s and health care costs grow. All told state and local governments are on the hook for up to $1.5 trillion dollars for retiree health benefits. Retiree health benefits are not protected by law. For instance the city of Stockton, California intends to shed its $400 million unfunded liability for retiree benefits in bankruptcy.

The City of Memphis has an unfunded healthcare liability (OPEB) of $1.3 billion dollars. What will the future hold for us?

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