NCPA - National Center for Policy Analysis

Detroit Shows How Cities Can Shakedown ObamaCare

August 13, 2013

Fifty years ago, Detroit's Motown music enthralled America. But generations of federal taxpayers will be singing the Detroit blues as other cities follow its example and start dumping their health care liabilities onto Uncle Sam, says Shikha Dalmia, a senior analyst at the Reason Foundation.

Detroit's bankruptcy came as no surprise to anyone who had watched for years as it (by turns) raided its retiree funds to pay its creditors and borrowed from its creditors to fund its retiree plans.

  • Its accumulated debt now approaches $20 billion, which is about 16 to 18 times its annual budget. About half of this is owed to private lenders. Of the rest, about $3.2 billion consists of pension and $5.7 billion health care costs of retirees.
  • Detroit's bankruptcy plan would give unsecured private lenders (who include creditors backed by general obligation bonds) only pennies on the dollar.

It'll pay a considerably greater portion of the pension benefits of its 19,000-plus retirees. But their health care costs it plans to make Uncle Sam's problem.

  • The city currently pays for the coverage of retirees under age 65 who don't qualify for Medicare.
  • It will hand these young retirees an unspecified "monthly stipend" to help defray coverage costs and still save some $27 million to $40 million annually.
  • They will obtain the balance from ObamaCare's exchange since it must subsidize everyone up to 400 percent of the poverty level.
  • Detroit officials regard this as a "win-win" for Detroit and its retirees.
  • But what they don't say is that it'll be "lose-lose" for the country and federal taxpayers.

The Pew Center for the States recently looked at 61 major cities across the country and found that, taken together, they had promised $118.2 billion in unfunded health care benefits. But that doesn't even begin to scratch the surface.

  • A 2006 study by Jagadeesh Gokhale and Chris Edwards of the Cato Institute estimated that the average unfunded health cost per government employee is $135,313.
  • Given that about 10.3 million workers are covered by state and local government health care plans on retirement, that works out to $1.4 trillion.

Source: Shikha Dalmia, "Detroit Shows How Cities Can Shakedown ObamaCare," Reason Magazine, August 7, 2013.


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