WSJ: Real Reason for Shutdown

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Mayor Rahm Emanuel of Chicago was scrambling to close a $369 million deficit in 2013. The inception of ObamaCare offered an enticing target for cost shaving: retiree health coverage.

The city expected to spend $194 million that year subsidizing health insurance for its retirees, many of whom were too young to qualify for Medicare. Such costs were projected to increase to $540 million by 2023 at the same time as pension payments were ballooning. While courts in Illinois and other states have held that public employee pensions are legally protected, governments have more latitude to make changes to medical benefits.

So Mr. Emanuel dumped his city’s retirees onto the nascent ObamaCare exchanges, where federal subsidies can reduce premium payments. Voilà, Chicago’s $2.1 billion unfunded retiree healthcare liability vanished. Now U.S. taxpayers pick up the tab for Chicago’s retirees in their 50s and early 60s.

Chicago isn’t alone in trying this neat fiscal trick. Detroit, Stockton, Calif., and San Bernardino, Calif., also saved billions by shifting pre-Medicare retirees to ObamaCare when they filed for Chapter 9 bankruptcy in the 2010s. That minimized cuts to workers’ compensation and pensions. Detroit’s $170 million annual retiree healthcare bill made up nearly 20% of its general fund budget, one of the city’s biggest costs.

Other municipalities may move retirees to ObamaCare to avoid layoffs and tax hikes. ObamaCare could soon became a safety valve for underwater cities.

Enter Democrats in Congress, who are refusing to reopen the government unless Republicans agree to extend the pandemic-era ObamaCare subsidies that are set to expire at the end of the year. The news is filled with stories of people who will have to pay modestly more for their insurance, never mind that the feds would still pick up roughly 80% of the cost for a typical plan.

The reality is that extending the sweetened subsidies will encourage more states and cities to follow the lead of Chicago, shifting the healthcare costs of their young retirees to national taxpayers. It’s a backdoor bailout...

. The liabilities are also rapidly rising, as healthcare costs grow at two to three times the rate of inflation. Given such explosive costs, why haven’t more governments dumped their retirees on ObamaCare exchanges? In part because of opposition from public unions. ObamaCare plans tend to be skimpier, with narrower provider networks than those most government retirees enjoy.

Many government retirees also weren’t eligible for federal subsidies under pre-pandemic rules. That’s because the subsidies previously had been limited to those making less than 400% of the poverty line ($62,600 for a single person, $84,600 for a married couple). It’s fairly common for government workers, especially those in public safety, to retire with six-figure pensions.

Unions could do the math. The annual premium for retirees over 50 on an ObamaCare plan can run upward of $15,000 for a single and $30,000 for a couple. Before Democrats sweetened the subsidies in 2021, government retirees with bigger pensions who were dropped onto ObamaCare would have had to pay their full premium cost. Heaven forefend, this might have pushed them to work longer.

The sweetened ObamaCare subsidies, however, can slash premium payments for retirees with bigger pensions. Those with smaller pensions may not have to pay a penny toward their premiums. If Congress extends the bigger subsidies, governments and unions will get the message: They are here to stay.

As governments hunt for ways to close budget gaps, unions may find dumping retirees on ObamaCare more palatable than layoffs or other benefit cuts. It could also free up revenue for expanding government programs. New York City last year spent $3.7 billion on retiree healthcare, money that a Mayor Zohran Mamdani might want for free child care or government-run grocery stores.

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