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Health Care for Detroit Employees and Retirees at Risk under Detroit Bankruptcy

On July 18, 2013, Detroit’s emergency manager Kevin Orr filed for Chapter 9 bankruptcy protection in the Eastern District of Michigan U.S. Bankruptcy Court. Emergency manager Kevin Orr, appointed by Governor Rick Snyder, is tasked with financial control of the city and the power to liquidate city assets. Orr is focused on restructuring Detroit’s debt. Detroit is the largest municipality in United States history to file for bankruptcy.

Retiree health care program costs are a named source of Detroit’s bankruptcy filing. Kevin Orr’s bankruptcy filing, a decision authorized by Governor Snyder, occurred one day after Detroit’s two largest municipal pension funds filed suit in state court to stop Orr from cutting retiree health care benefits for Detroit residents. Detroit’s retirees are now worried about possible cuts to their promised healthcare benefits. In a press conference after the filing, Kevin Orr assured Detroit residents that for the next six months there would be no cuts to health care benefits for Detroit’s active workers and retirees.

On August 2, 2013, Kevin Orr announced a new health care plan for city workers that he believes will save the city almost $12 million per year. Orr’s proposal increases workers’ annual deductibles and caps on out-of-pocket costs. If the unions reject Orr’s proposal, then Orr still has the power to change employees’ health care plans under Michigan’s emergency manager law. According to the Detroit Free Press, union leaders are not convinced that Orr’s plan is the best alternative to the current situation.

Local health care insurers have contracts with the city of Detroit and provide thousands of city of Detroit employees, retirees, and family members with health insurance. In the past, Detroit has been forced to borrow money to meet operating costs for programs such as health insurance for city workers. A Crain’s Detroit Business article reports that, “Health care insurers and hospitals under contracts or that provide services to city of Detroit employees and retirees could be on the hook for unpaid bills depending on how the city’s bankruptcy proceedings go.” The Crain’s article further states that, “… officials for several hospital systems said they did not expect bankruptcy to affect their operations.” Nevertheless, metro Detroit hospitals such as Beaumont Health System, Henry Ford Health System, and Oaklwood Healthcare have voiced apprehension of the repercussions hospitals may face if Detroit is unable to pay for its local health plans.

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