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Chicago can’t afford retirees’ health care costs: panel

Updated: February 16, 2013 6:21AM

Chicago taxpayers can no longer afford to subsidize retiree health care at existing levels, a mayoral commission has concluded, recommending painful solutions that range from sharply higher employee contributions and reduced city support to forcing retirees to fend for themselves under ObamaCare.

The Retiree Health Care Commission’s explosive report cites a series of factors that demand a solution to the $108.7 million-a-year burden on Chicago taxpayers: a rising number of retirees, longer life spans, a shrinking city payroll and a financial squeeze on the city’s corporate fund that threatens the all-important bond rating that determines city borrowing costs.

The report does not recommend any specific option, but simply describes an escalating burden for Chicago taxpayers. The number of city retirees is expected to rise from 36,712 currently to 47,345 by 2023.

The annual costs do not include police and fire early retirees, who receive free health care under the active employee benefit plan until they become eligible for Medicare.

“Continuing the existing financial arrangement is not a viable course of action. … With an increasing retiree population, early retirement ages and longer life spans, the ability of the city to provide benefits to its retirees on the same basis would appear to be untenable,” the reports states.

“The [committee] respects the city’s retirees and values the many years of service they have provided to the city. It is regrettable that the city’s financial situation may not permit continued coverage on the current basis. We understand that this will cause duress to retirees. We urge the mayor to carefully consider the most financially vulnerable populations within the retirees for whom the elimination or drastic reduction in subsidized health care coverage would be particularly difficult.”

A 10-year settlement agreement that calls for the city to share costs with retirees is due to expire on June 30.

Civic Federation President Laurence Msall said it’s time the city face the music on retiree health care, which is inextricably linked to the city’s pension crisis.

“The city’s continued projected budget deficit and failure to reach significant pension reform in Springfield means there simply is not enough money to pay for these benefits,” Msall said.

“Something is going to have to give and it’s going to require sacrifice from everyone involved, including retirees. In the private sector, those firms that continue to offer retiree health care require a much larger contribution all the way up to full payment by retirees.”

The Chicago Sun-Times reported last week that union leaders were bracing for the report on Chicago’s $800 million retiree health care crisis that could set the stage for higher contributions from 35,000 retirees, reduced benefits or a lethal mix of the two.

Sources said then the omission would give Mayor Rahm Emanuel a series of cost-cutting options driven not by what’s best for the city’s 35,000 retirees, but by what he believes the city can afford.

The report released Monday does just that.

It outlines a series of options to save anywhere from $17.5 million-a-year to the entire $108.7 million over two years by phasing out the subsidy and forcing the Affordable Care Act, better known as ObamaCare, to pick up the slack.

Within those options are proposals to reduce city support from the current 55 percent to: 40 percent; 30 percent; 20 percent; or even 16 percent for some classes of retirees and to eliminate support for dependents altogether while maintaining it for retirees.

A table included in the report shows how much more money retirees would have to pay under the different funding scenarios.

For example, a single employee eligible for Medicare now paying $73-a-month under the current 55 percent city support level would see monthly premiums rise to $193 if taxpayer support were reduced to 16 percent.

Single employees not eligible for Medicare would go from $295 to $632 a month.

A retiree and spouse, both ineligible for Medicare, would see their monthly costs rise from $1,147 currently to $1,484 if city support were reduced to 16 percent.

The ball is now in Emanuel’s court. He must choose between the options and brace for the considerable political fall-out.

Last week, the mayor did not shy away from the controversy.

Just as active city employees have been forced to choose between a $50 increase in monthly health insurance premiums and a wellness program tailor-made to control chronic diseases, Emanuel said retirees will also face the tough choices needed to control Chicago’s skyrocketing health care costs.

“Had we taken no action in the first two budgets of my tenure, health care costs today would be somewhere close to $600 million. They’re coming in at around $400 million mainly because we made a number of tough decisions,” he said.

“I said also then we were gonna look at changes as it relates to our retiree health care. Nothing was gonna be walled off from either a fresh set of eyes, a fresh set of changes or reforms. The report is coming due. They’ll make some findings available. But, I plan on also taking the steps necessary to have a fresh look at what we should do differently and make some changes that are necessary because we only have one set of taxpayers who are asked to foot that bill.”

Noting the June 30 expiration date, Emanuel said, “After something that’s been in place for X years doesn’t mean it stays that way. It means that, when it comes up for review, you make changes,” the mayor said.

Chicago’s pension and retiree health care crises are inextricably linked, because under-funded city pension funds now contribute 13 percent to retiree health care. Chicago taxpayers contribute 55 percent and retirees pay 32 percent.

Retiree health care represents an $800 million unfunded liability for the city.

Clinton Krislov, an attorney representing retirees in the marathon case, could not be reached for comment.

In the past, he has said the key will be how the mayor chooses to navigate four different groups of retirees who stopped working on different dates. Krislov has also said he is prepared to seek a court injunction preventing the city from “diminishing or impairing” health benefits for the oldest group of retirees.

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