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Detroit considers pushing its retirees into health exchanges: lawyer

Detroit's Emergency Manager Kevyn Orr talks with Reuters during an interview in Detroit, Michigan August 7, 2013. REUTERS/Rebecca Cook
Detroit's Emergency Manager Kevyn Orr talks with Reuters during an interview in Detroit, Michigan August 7, 2013. REUTERS/Rebecca Cook

By Joseph Lichterman

DETROIT (Reuters) - Detroit's emergency manager is considering ending its health insurance coverage for city retirees under age 65 and giving them a modest stipend to purchase insurance from the health exchanges being established under Obamacare, according to a lawyer who represents two associations of public workers.

Brian O'Keefe, an attorney who represents associations of Detroit police, firefighters and other city employees, said on Thursday that the emergency manager, Kevyn Orr, is considering offering a stipend of about $125 a month for retirees under age 65. Those over 65, who now get city-paid health insurance to supplement their Medicare coverage, would get only Medicare.

Orr's spokesman, Bill Nowling, said he could not comment on the specifics of the current proposal, but he said Orr initially spoke with the city's unions and pension boards in June about the changes to their healthcare plans. At that time, Nowling said, Orr proposed offering retirees under 65 $110 per month to purchase coverage from a health exchange.

Detroit in July became the largest city in U.S. history to seek bankruptcy protection, and Orr is struggling to pare down its more than $18 billion in debt.

Nowling said it was imperative for the city to quickly reach a deal with the retirees about their healthcare because the insurance exchanges being established under the U.S. Affordable Care Act are scheduled to launch October 1.

"This is absolutely crucial to getting (Detroit's financial situation) figured out," Nowling said. "What's even more important is we have to get an agreement and move forward on a plan because retirees are going to have to start making decisions about what provider they want to seek out."

O'Keefe said the plan to offer younger retirees a stipend was "outrageous then and is outrageous now," saying the monthly payment is "not even close to comparable to what they've been receiving."

Converting younger retirees to a plan offering a $125 monthly stipend would reduce Detroit's annual retiree healthcare costs to less than $50 million from $170 million, Lamont Satchel, the city's director of labor relations, told the Detroit Free Press.

All retirees under 65 who belong to the General Retirement System or the Police and Fire Retirement System would be affected.

Detroit's $5.7 billion in liabilities for healthcare and other retiree benefits account for about half of its $11.5 billion in unsecured debt. There are about 23,500 retired city workers, more than double Detroit's current city payroll.

The city has not finalized the plan for the monthly stipend, but Orr could make a decision as soon as this week, Satchel told the newspaper.

Satchel could not be reached immediately for comment. The city's offices were closed on Thursday after a widespread power outage knocked out electricity throughout downtown Detroit.

But O'Keefe said the process could go on for months, well beyond the October 1 deadline.

"This is an initial proposal or an initial shot across the bow," he said. "There's a long way to go."

Michigan's insurance exchange, which will be run by the federal government because the state legislature failed to approve a state-run exchange, will go into effect on January 1, 2014.

On Wednesday, the General Retirement System said it will contribute more than $1.3 million toward new healthcare plans for current employees, the Free Press reported.

Last month, Orr proposed changes to health benefits for current city workers that are projected to save the city $12 million annually by reducing the number of plans available and by raising deductibles.

The annual deductible for a single city worker would nearly quadruple to $750 from $200 now under the new proposal.

The annual deductible for married employees would increase to $1,500, and out-of-pocket expenses for a family would be capped at $4,500, up from $3,000 currently.

(Reporting by Joseph Lichterman; Additional reporting by Bernie Woodall; Editing by Leslie Adler)

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