Obamacare Is Secretly A Bailout Of State & Local Government
Sept 18, 2013 4:55:39 GMT -5
Post by popcorn on Sept 18, 2013 4:55:39 GMT -5
Obamacare Is Secretly A Bailout Of State And Local Governments 
Only federal taxpayers will get left holding the bag.
Here’s a feature of Obamacare you probably don’t know about: A transfer of hundreds of billions of dollars in liabilities to retired public employees from state and local governments to federal taxpayers.
Here’s how it’s going to work.
States and localities have enormous liabilities in the form of health benefits they have promised to provide to retired workers. (Finance professionals call these benefits OPEB, or “other post-employment benefits.”) Most public sector retirees get health plans until they turn 65, and then supplemental coverage on top of Medicare after that.
In most cases, state and local governments haven’t prefunded these liabilities at all. As Americans age and health care costs rise, this is becoming a major drain on state and local finances, arguably more important than more-widely-discussed problems with public employee pensions.
But Obamacare will give states and cities a major out. Instead of providing health care to under-65 retirees, they can tell them to go buy health plans in the Obamacare exchanges. In many cases, those retirees will qualify for substantial subsidies to buy such plans. States and localities will often stand to save thousands of dollars per retiree per year, even if they provide a cash stipend to help each employee buy insurance in the exchange.
All told, state and local governments should be able to shift hundreds of billions of dollars in OPEB liabilities to the federal government. That will mean major savings for those governments. But it will also drive costs upward at the federal level.
Stressed local governments already making the shift
Detroit, as part of its bankruptcy plan, wants to stop providing health care to retirees and instead give them each a $125 monthly stipend to buy insurance in the exchange. Currently, Detroit spends $721 per month per retiree on health benefits, so this move will allow Detroit to cut its OPEB liability by 80%.
But it won’t just be bankrupt cities like Detroit making the move. Chicago and Rhode Island— governments facing tight fiscal situations but not on the brink of bankruptcy — are considering similar shifts.
Unlike pensions, retiree health benefits are usually not legally guaranteed. Stressed cities and states will see kicking OPEB costs up to the federal government as a politically appealing option because of that legal flexibility.
Even in places where finances are flush, the shift will be tempting. Public employee unions that work together with state and local governments to switch to federal coverage will be playing a positive sum game: Existing benefits can be replaced with a combination of Obamacare coverage and cash that leaves retirees with more income and local governments with lower costs. Only federal taxpayers will get left holding the bag.
read more:
Only federal taxpayers will get left holding the bag. Here’s a feature of Obamacare you probably don’t know about: A transfer of hundreds of billions of dollars in liabilities to retired public employees from state and local governments to federal taxpayers.
Here’s how it’s going to work.
States and localities have enormous liabilities in the form of health benefits they have promised to provide to retired workers. (Finance professionals call these benefits OPEB, or “other post-employment benefits.”) Most public sector retirees get health plans until they turn 65, and then supplemental coverage on top of Medicare after that.
In most cases, state and local governments haven’t prefunded these liabilities at all. As Americans age and health care costs rise, this is becoming a major drain on state and local finances, arguably more important than more-widely-discussed problems with public employee pensions.
But Obamacare will give states and cities a major out. Instead of providing health care to under-65 retirees, they can tell them to go buy health plans in the Obamacare exchanges. In many cases, those retirees will qualify for substantial subsidies to buy such plans. States and localities will often stand to save thousands of dollars per retiree per year, even if they provide a cash stipend to help each employee buy insurance in the exchange.
All told, state and local governments should be able to shift hundreds of billions of dollars in OPEB liabilities to the federal government. That will mean major savings for those governments. But it will also drive costs upward at the federal level.
Stressed local governments already making the shift
Detroit, as part of its bankruptcy plan, wants to stop providing health care to retirees and instead give them each a $125 monthly stipend to buy insurance in the exchange. Currently, Detroit spends $721 per month per retiree on health benefits, so this move will allow Detroit to cut its OPEB liability by 80%.
But it won’t just be bankrupt cities like Detroit making the move. Chicago and Rhode Island— governments facing tight fiscal situations but not on the brink of bankruptcy — are considering similar shifts.
Unlike pensions, retiree health benefits are usually not legally guaranteed. Stressed cities and states will see kicking OPEB costs up to the federal government as a politically appealing option because of that legal flexibility.
Even in places where finances are flush, the shift will be tempting. Public employee unions that work together with state and local governments to switch to federal coverage will be playing a positive sum game: Existing benefits can be replaced with a combination of Obamacare coverage and cash that leaves retirees with more income and local governments with lower costs. Only federal taxpayers will get left holding the bag.
read more:
