“Mayor Emanuel’s decision to remove retirees and their spouses who are not yet eligible for Medicare from the city’s healthcare program and remove healthcare subsidies, without even considering providing an affordable alternative healthcare option, has been extremely harmful to many. This is especially true for widowed spouses and their dependents and other city employees with modest and often inadequate city pension income.
“The insensitivity to the financial hardships was fully demonstrated when the attorney for the retirees highlighted the mayor’s cavalier reply to an October 2015 email from venture capitalist Henry Feinberg in an Illinois Appellate Court brief that pushed for preliminary injunction that sought to compel the city to restore the benefit. ‘Since when did Rahm Emanuel let a judicial ruling get in his way and not find a creative work-around solution?’ Feinberg wrote then. Emanuel replied, ‘Never! Which is why I eliminated retiree health care. Only elected official to eliminate-not cut or reform-a benefit. Thank you very much. A $175 million saving!’ Emanuel later said he ‘wasn’t bragging’ as much as he was ‘acknowledging how we stabilized” skyrocketing healthcare costs. Attorney Clint Krislov didn’t buy the mayor’s argument. His brief branded Emanuel’s email ‘boasting.’
“The flippant attitude has prompted continued litigation which might ultimately overturn the mayor and city council actions. Still, the mayor’s typically abrasive tactics will only harden the union’s position on other issues and complicate future attempts to forge working relationship that allow the City to deliver services that are both affordable and effective.
“I will work to repair the damage done by the city’s arrogant and insensitive approach to retiree healthcare, as if retirees were enemy combatants. City leaders must demonstrate their commitment that retirees receive quality affordable healthcare and that the most vulnerable should receive the greatest support. I am confident a way can be found that will enable the city to provide quality retiree healthcare that is affordable for both the retirees and the city.
Vallas’ Plan: Restore Retiree Healthcare
Objective: Restore comprehensive and affordable healthcare for City of Chicago retirees, without imposing an undue financial burden on the city or our hardworking retired city employees, nor subjecting the city to long-term mandated costs.
Background: Mayor Emanuel’s decision to remove retirees and their spouses who are not yet eligible for Medicare from the city’s healthcare program and remove the healthcare subsidies has been extremely harmful to many. Emanuel did this without even considering providing an affordable alternative healthcare option. The harmfulness of this decision is especially true for widowed spouses, their dependents, and other city employees with modest and often inadequate city pension income. This is no way to treat dedicated public employers who worked diligently for decades for the city.
Create the City of Chicago Retiree Healthcare Program: The City of Chicago Retiree Healthcare Program, modeled after the Chicago Teachers Retiree Healthcare Program, will be created to provide comprehensive and affordable health care to retired city employees and their dependents.
The City of Chicago Retiree Healthcare Program will do the following:
- Provide access to a comprehensive, easily accessible, and uncomplicated health plan.
- Negotiate rates and benefits that will reduce healthcare costs.
- Subsidize premiums to further reduce the costs, with larger subsidies provided to surviving spouses and their children.
- Cap the city’s liability by establishing fixed maximum dollar amount for the aggregate subsidy, which can be adjusted through negotiation with collective bargaining units.
- The Retiree Healthcare Program will not reduce, nor diminish existing benefits to current or future retirees that have been agreed upon by various unions.
- An example includes the retirement plan available for Chicago police officers age 55-59 that allows them to pay 2% of their pension for medical coverage until they become Medicare eligible.
Protections for the City
The healthcare program benefits, as well as the annual subsidy, will stay outside of the constitutional guarantee of pension benefits.
The liability is capped at the amount of the annual subsidy and does not expose the city to an open-ended Other Post-Employment Benefit (OPEB) liability that would adversely affect the credit rating.
The annual subsidy is the decision made by the city based on available revenues and determined through the collective bargaining process.
Advantages to Retirees
- City negotiated rates and benefits that are better than market rates for most members over the long-term.
- Smooth transition from the “Active” employee healthcare to “Retiree” healthcare.
- Bargaining units can secure larger subsidies through negotiation.
- Tiered subsidies can be established to allow larger subsidies for those with extreme financial burdens, such as spouses of deceased retirees and their dependents.
- An easy-to-navigate program that combats the complexities of Medicare for its recipients. Retirees often need a helping hand.
The Chicago Teachers Retiree Healthcare Model
Chicago Teachers Pension Fund healthcare benefit is limited to $65 million, plus any unused amount from prior years. They currently provide a subsidy equal to 50% of the member’s premium.
Since its inception, when the aggregate cap increased, the healthcare benefit has been based on state legislative action. Over the years, the percentage of premium subsidy dropped due to changes in membership and premiums. This demonstrates that negotiated rates and benefits are better than the market for most members over the long-term.
- Consideration of the impact of allowing existing employees to opt into the federal Social Security System and placement of all Tier 2 employees in the system to ensure their eligibility for Social Security.
- Consideration of allowing spouses of deceased retirees and their dependents to remain in the regular active member health care system.
The subsidy amount must be the product of strategic bargaining. This will minimize the impact on city finances. We will invite the unions to become a full partner in this effort. It will not be a legislative mandate. Thus, it will not impose long-term financial obligations on the city. There are multiple pathways that we can consider for providing a subsidy that will not impose a permanent long-term funding mandate on the city. The objective, however, will be to ensure the availability of a high-quality and affordable healthcare program for all retirees.
The city can help pay for its portion of the expenses through a variety of means. The city can:
- Divert a portion of the salary increase in the next contract to fund retiree healthcare.
- Require a small annual contribution from active employees, which could be tied to income.
- Work with union leadership to identify and agree upon legitimate areas of expenditure reduction. Use part of the savings to finance the city’s subsidy.
- Monetize certain activities of individual city departments. Share in the new income generation.
Allowing the Retiree Healthcare Program to share in the savings from expenditure reductions and the income from department monetizing efforts will incentivize the unions and city employees to become full partners in the city’s efforts to restore comprehensive and affordable retiree healthcare, while minimizing impact on both short and long-term city finances.
Addressing the retiree healthcare issue in a constructive and affordable way will significantly improve employee-employer relations and provide the model for full city-labor partnerships. These will be critical to engendering the type of cooperation needed to address other pressing issues.