Ill. Gov. Pat Quinn has signed legislation that extends retiree healthcare benefits for Chicago employees through 2016, a move that lays the groundwork for Mayor Rahm Emanuel’s plan to eventually eliminate the subsidies for many retirees as the city seeks to shed a rising expense.
Senate Bill 1584 extends the state law that currently provides for city subsidies to cover the healthcare costs for retirees and eligible beneficiaries who are not eligible for Medicare. The former law expired June 30 in conjunction with the expiration of a court settlement on the subject. Although the city can keep the benefits in place through 2016 the law does not require the city to do so at current levels.
Emanuel’s administration in May began notifying city retirees that most will lose their health care subsidies over the next few years. The administration had been weighing options to address the growing expense of providing the benefit categorized as non-pension, other post-employment benefits ahead of the June 30 expiration of the legal settlement in City of Chicago v. Korshak.
A special commission led by city Comptroller Amer Ahmad concluded in a report released early this year that the cash-strapped city can’t afford to keep subsidizing retiree health care at existing levels. The city pays $64 million to cover its share of benefits for non-Medicare annuitants and their spouses and dependents, and another $44 million for Medicare. If left intact, the current $108 million annual bill is projected to grow to $307 million in 2018 and $541 million in 2023.
The administration plans to continue coverage at current levels through 2013. The city intends to adjust premiums and/or deductibles and other benefits over the next three years phasing out the benefit altogether by 2017. A revised structure will be announced over the summer.
The subsidy would be preserved those who retired prior to 1989 and were behind litigation that led to the settlement. Police and firefighters who retire before they are eligible for Medicare also will continue to receive the benefit as required under their contract. More than 30,000 others will lose coverage.
The city argues that retirees who are not yet eligible for Medicare will find affordable coverage through the health insurance exchange Illinois will set up in 2014 as part of federal health care reform.
Chicago covers its retiree health care costs on a pay-as-you-go basis with the annual cost now at about $108 million. The city’s accrued unfunded OPEB obligation at the end of 2011 was just $254 million, but that assumes that the bulk of the city’s obligations end with the June 30 settlement expiration. Full continuation of the existing plan would result in a $2.1 billion accrued unfunded liability.
Unions are preparing a lawsuit to challenge the city’s plans.
