Fumbled Obamacare Cools Cities’ Interest in Website

The crash-plagued debut of the Obamacare website is leading cities and towns to pull back on plans to curb billions of health-care costs by sending retired workers to the federal insurance marketplace.

Detroit postponed the shift of 8,000 retirees under the age of 65 in early November, a month after the healthcare.gov website opened to outages. The site’s inability to cope with visitors added to union hurdles in places including Providence, Rhode Island. Other Rhode island cities are balking as the state studies the benefits of sending former workers to the exchange.

“I have no desire to entertain anything with Obamacare because I’m seeing what is going on now,” said Joseph M. Polisena, the Democratic mayor of Johnston, the town with the largest unfunded health-care liability in Rhode Island as a percentage of operating revenue, according to Moody’s Investors Service. “It has been a flop. I don’t think this is going to get up and running.”

The negative reaction to the flawed website comes as the country’s largest cities face a combined $126 billion of unfunded health-care costs for retirees, according to a study by the Philadelphia-based Pew Charitable Trusts. The pullback by local officials also represents the latest realization that details of President Barack Obama’s health overhaul don’t quite square with early hopes or perceptions of it.

“There is a lot of complexity in all of this that got simplified,” said Neil Bomberg, a program director at the National League of Cities in Washington. “Is there really a cost saving if they move their retirees off of health care? There might not be.”

Detroit Bankruptcy

Perhaps the city with the most to gain from the the health overhaul is Detroit, which filed a record $18 billion bankruptcy in July that includes $5.7 billion in unfunded retiree health-care liabilities.

The city’s proposal to shift about 8,000 former workers to the exchange with a $125 monthly stipend and 12,000 to Medicare is expected to reduce annual retiree health-care costs to about $30 million from $180 million, according to Bill Nowling, a spokesman for Detroit’s emergency manager Kevyn Orr.

Retired Detroit workers were to start using the exchange to find insurance on Jan. 1. That was postponed until Feb. 28 due to the exchange foul-ups and to enable more time for mediation between the city and a committee representing the 20,000 retirees, Nowling said. He declined to elaborate on the delay.

“The websites weren’t ready,” said Donald Taylor, president of the Retired Detroit Police and Fire Fighters Association. He said he isn’t optimistic the insurance markets will be ready soon.

Many Unknowns

“There are too many unknowns right now to make a commitment,” Taylor said. “I don’t know anyone who knows how Obamacare is going to work.”

City leaders question whether the plans offered on the federal marketplace will provide adequate health care for former municipal employees, who often live and vote in the cities and towns where they once worked.

The website is intended to be the main portal for millions of uninsured people in 36 states to buy coverage under the Patient Protection and Affordable Care Act of 2010. Since its start on Oct. 1, people using the site have experienced slow page-loading times, blank pages and hang-ups. The flaws have exacerbated the concerns of city officials.

“Because of the problems they would be concerned that they could not ensure their retirees would have access to the level of health care they need,” Bomberg said. “It is unsettling when a program of this magnitude rolls out in such an unfortunately questionable way.”

Too Young

Retirees under the age 65 are too young to qualify for Medicare and their health costs often fall to former employers. Sending these ex-workers to the health exchanges -- perhaps with a city stipend -- may remove a drag on municipal balance sheets. Moody’s, looking at Rhode Island, listed moving retirees to the exchanges first in a report on strategies to reduce municipal health-care costs.

That cities haven’t embraced the health exchange is s surprise that shows how deep the problems are, said Richard Nathan, a senior fellow and former director of the New York-based Rockefeller Institute of Government, which is studying the implementation of the Affordable Care Act.

“Budget directors and financial officers are very shrewd and cagey people and are always looking for gimmicks and opportunities,” Nathan said. “It is the dog that didn’t bark.”

Missing Details

In Rhode Island, where a state pension commission is studying whether municipalities may save money by using the Obamacare exchange, one hurdle is collecting the needed data on retirees’ household incomes, said Rosemary Booth Gallogly, director of revenue and the chairman of the commission. That’s necessary to determine whether a portion of the former workers could qualify for federal subsidies, a key element in determining how much the plans will cost.

“It is not going to be the same for every person,” Gallogly said. “It is not easy, that is why we are not that far along. It is like anything, it is worth doing it will probably be a lot of work.”

Providence, the largest city in Rhode Island, has $1.1 billion in unfunded health liabilities, according to Moody’s. The city examined moving retirees to the exchanges as a way to reduce costs and abandoned the idea, at least for now.

“Moving eligible retirees under 65 onto Obamacare would require amending the city’s existing labor contracts,” David Ortiz, a spokesman for Democratic Mayor Angel Taveras, said in a statement.

One city that is moving ahead with its plan is Chicago, which in May announced it would end municipal health care for about 20,400 retirees, sending those under 65 to the exchanges.

There, however, retirees have some time. Their city plans don’t expire until 2017.

To contact the reporters on this story: Annie Linskey in Boston at alinskey@bloomberg.net; Chris Christoff in Lansing at cchristoff@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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