Should cities or towns move their retirees off of their existing health care plans and into the Affordable Care Act’s individual marketplace or exchange as a way to bring their fiscal house into order? If you read the New York Times or watch Fox News you might think that cities and towns across America are thinking about this. But in reality they are not. The decision on how to treat one’s retirees is a very complicated and difficult decision.
At first glance, it may seem to make sense for a city or town to move their retirees into the state marketplace or exchange. This would reduce substantially what the city or town has to pay out each year in health insurance related costs, or so you would assume. However, there are many other questions that a city or town would have to answer before the benefits of such a move could be realized.
These questions include:
- What impact would a decision to reduce the numbers of persons in the pool have on the cost of individual insurance premiums? If retired firefighters or retired police officers are taken out of their respective pools, would the overall cost of insurance increase for those on the job, because those on the job are at greater risk of sustaining a life threatening injury than those off the job?
- What contractual or collective bargaining agreements does the city or town have with its workers? Would the local government have to set up a Health Savings Account for each retiree so that each retiree had the resources to pay for their own insurance? If so would this actually save the local government money?
- How would the decision to alter employee expectations impact the demands of workers currently employed? Would a decision to move retirees to the exchange open collective bargaining agreements to changes that might ultimately not save the city or town any money?
- How would changes to the health care plan impact the plan’s “grandfathered” status, if at all? Once employers start to make changes to what are otherwise grandfathered plans under the ACA, how would changes impact the plan, and would those changes offset any cost savings realized from moving retirees into the exchanges?
- What political and social costs might be incurred by the decision to move retirees off the city’s health care plan and into the exchange? Will the differences between what is available through the city and town, and what may be available through the exchanges be worth the political and social costs that might occur, including higher co-pays for retirees and larger contributions to the cost of their health care (and therefore a diminishing of the value of their retirement)?
Ultimately, these and other factors will have to be taken into consideration as city and town leaders make important decisions about the health care coverage available to their retirees, especially those police and fire retirees who are not yet eligible for Medicare. It is too early to draw any firm conclusions, and experiments like those proposed in Detroit, Chicago, and Stockton, CA will play a significant role in determining just how far cities and towns are willing to go when it comes to changing their retirees’ benefits.