Detroit Shows How Cities Can Shakedown Obamacare

Cities don't have to be in trouble to dump retirees on federal taxpayers


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.

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  — 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 65 who don't qualify for Medicare. And there are plenty of them given that city workers habitually take early retirement after about 25 years of service  — and either take on other jobs or do their existing job for the city as contractors. They are allowed to work for a thousand hours a year without jeopardizing any benefits.

The city will hand these young retirees an unspecified "monthly stipend" to help defray coverage costs  — and still save some $27 to $40 million annually. The balance they will obtain 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. True.

But what they don't say is that it'll be "lose-lose" for the country and federal taxpayers.

Detroit is hardly the first city to think of having ObamaCare subsidize its retirees. Chicago, which is in financial difficulty but not bankruptcy, announced a similar plan even before Detroit. Other cities  — some not even financially distressed  — are contemplating doing the same thing.

And why not? ObamaCare imposes no penalties on governments that offload their retirees  — in contrast to large employers who offload their active employees.

So how much would Uncle Sam potentially be on the hook for?

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 Gokhlae 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.

Other studies published around the same time by Credit Suisse and J.P. Morgan confirmed this estimate.  Gokhlae believes that the $1.4 trillion likely hasn't changed much one way or the other given that health care inflation has moderated.But the question is from where will the federal government get the money for city retirees? Its own unfunded Medicare and Medicaid obligations over the next 75 years add up to $58 trillion, according to the Heritage Foundation. And that was before ObamaCare—which adds another $17 trillion in unfunded liabilities.

Detroit and her sisters are not dipping into an existing pool of federal money to pay for their retirees. They are simply deepening Uncle Sam's well of debt  — and hastening the day when future generations will drown in it.

If Uncle Sam's plan so far was to rob Paul's grandchildren to pay for Paul, Detroit and its sisters will now push him to rob Paul's children.

A family that saddled its children with crippling debt would be regarded as reprehensible. But when our national and local governments collude to rob future Americans, it's just a nifty fiscal move.

NEXT: Stand Your Ground Cited in Teen's Killing of Stick-Wielding Man, Teen to Face Weapons Charges

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. Future generations will use Chief Justice Roberts as an example of someone who screwed over and betrayed their country instead of Benedict Arnold.

    1. Then there’s the theory that future generations will use the 2012 electorate as an example of people who screwed over and betrayed their country — and Roberts refused to save them from their own asses.

      As I behold the debacle of ObamaCare, I begin to see a silver lining. I linked a Daily Kos diary here by a sticker-shocked New York liberal giving a full rundown on the numbers for her and every flaw in the law: adverse selection, the reliance on the Young Invincibles, the illusion of “lower premiums” in New York which are actually the result of community ratings and guaranteed issue, the WORKS. The diary could have been written by Avik Roy if it weren’t for the idiotic conclusion that Single Payer is the solution. One of the commenters said that Republicans were being proven right about the lousiness of government programs.

      In 2016, Hillary will be FORCED to campaign on “Mend it, don’t end it.” Politically she cannot promise to shitcan Obama’s handiwork. AND she’ll have to ignore that First Lady behind the curtain who designed such a POS in the 90s that zero Democrats in the legislature endorsed it!

      With any luck — and here, we sigh heavily — her Republican opponent will be offering a better choice. SHITCAN THIS LAW FROM WHICH CONGRESS IS ILLEGALLY EXEMPT and institute reforms that will work.

      Uh, where am I? Oh. The Detroit thread. And I’ve reached my word limit. So see below.

    2. John Roberts, with an IRS to enforce his tyranny, has declared that he has a right (not only to TAX) but “to BIND us in ALL CASES WHATSOEVER,” and if being bound in that manner, is not slavery, then there is not such a thing as slavery upon earth. Even the expression is impious; for so unlimited a power can belong only to God.

  2. So. Yeah. As I was saying.

    So wait a minute, if it’s Detroit City retirees that will be dumped onto the exchanges, they won’t be eligible for subsidies, will they? Their pension payments should keep them above the subsidy line.

    1. You can get subsidies up to around $93k in income for a family of four. Does anyone wonder how we got to the 47%?

  3. Odious debt. As soon as the debtors (taxpayers) have more political clout than the creditors (retirees), there will be a restructuring.

    1. failed policy needs innocent voters.

      the shorter the lifespan, the more relative ubiquity of ‘sucker born every minute’.

      the parallels i see most in today’s politics is with things like “The Time Machine”with eloi and morlocks.

      short lived naive food sources who are gone before they can assemble or orient themselves.

      these are the kinds of ppl that will vote for obama. these are who voted him in.

  4. Commendable having on high heel slides though normally getting sensing an important anguish emotion ?nside your thighs and legs designed for very long periods, then simply it thing may Tory Burch Outlet Online be for one. It causes them all suitable plus probable to create somewhere. For every nice lovely women, well lit decorated Tory Burchs is a fabulous meet. Concentrating on collapsible Tory Burchs for one’s event, perhaps you can go for white-colored wedding event Tory Burchs, extremely made for brides-to-be to remain.

  5. FLOTUS: This is the ‘job’ she had in Chicago. A DUMPER par excellence. She, also, diddled in bait and switch. Fine FLOTUS.

  6. my buddy’s step-aunt makes $61 every hour on the computer. She has been without work for 6 months but last month her pay was $14651 just working on the computer for a few hours. Here’s the site to read more… max38.c?m

Please to post comments

Comments are closed.