Unions, heal thyselves: The perils of ‘free’ health care
By NICOLE GELINAS
NY Post - June 24, 2013
Nicole Gelinas Imagine you’re a retiree with chronic health problems on a fixed income, but too young for Medicare. You open your mail to find out your former employer is taking away your health insurance.
If you’re a retired city worker in Stockton, Calif., you don’t have to imagine. And if you work for New York City, you should be paying attention: The same thing could happen to you unless you wake your union leadership up.
Stockton declared bankruptcy last year — making the city of nearly 300,000 the biggest bankrupt city ever, and the third California city to go belly up since 2008.
REUTERS Everything goes on the table: A year later, bankruptcy has led Stockton, Calif., to break its promise of lifelong free health care for employees.The conventional wisdom is that California cities are broke because they borrowed too much. Wrong: Because their state Constitution limits property taxes, California cities have little debt, because they have no way to pay it back.
No, the main reason they’re declaring bankruptcy is to wriggle out of a different burden: the promises they made to workers to pay for lifetime health care.
As Stockton officials explained in their bankruptcy filing, “Throughout the 1990s, the city of Stockton approved contracts with labor groups that provided life-long, fully paid medical premiums for a retiree and one dependent. . . Unfortunately, prior administrations did not fund retiree medical benefits.”
The city said such payments now are “simply not affordable . . . without devastating” public services.
Hence the letter that went out last year. “Dear retiree,” it read. “Effective July 1, 2013, all retiree medical benefits will be eliminated.”
The city’s been paying partial stipends for the past year. But in a couple of weeks, retirees will be looking at $1,600-a-month premiums for a married couple ($800 for Medicare).
For most people, that’s life-changing money.
But it was for Stockton, too. By snatching away these benefits, it’s trying to shave a $417 million long-term “debt” to, well, nothing. (It’s also now forcing current workers to pay 20 percent of their health-care costs.)
Retirees sued. But the city is winning so far.
And its two bankrupt sister cities — Vallejo and San Bernardino — have made similar moves. Vallejo cut benefits to reduce its retiree-health-care “debt” by 40 percent, to $84.2 million. San Bernardino wants to chop its $63 million burden to little or nothing.
And Detroit, teetering on bankruptcy, plans to slash its “large and unfunded” retiree-health-care debt by 70 percent — by dumping younger retirees on ObamaCare and older ones on Medicare.
New York City’s government workers should pay attention.
Just like in pre-bankruptcy Stockton, New York City workers get free retiree health care. And just like in Stockton (and elsewhere), New York City hasn’t put money aside to pay the $88.2 billion future bill. (Mayor Bloomberg set some cash aside in the flush years, but then used it to fill budget holes these last few years.)
Other similarities should make New York workers nervous, too.
New York City spends as much — about 2.5 percent — of its budget on retiree health care as Stockton does. And the long-term bill for those costs equals about 125 percent of a single year’s budget — just like Stockton.
New York workers may comfort themselves in saying that Stockton is poorer than we are — the media keep calling it a “poor city.” But Stockton’s median income was 7.6 percent below ours between 2007 and 2011 — it’s close to the national average. Its poverty rate is higher than our 19 percent, but not by much — it was 22 percent.
And, yes, the property bust sent Stockton into a steep spiral — but that just shows how quickly things can change.
Sure, we have more rich people. But not even Public Advocate Bill de Blasio, the most liberal of the bunch running for mayor, wants the rich to pay for retiree health care. He wants new taxes to fund universal pre-K, so union workers can make money baby-sitting.
And, yes, we have strong unions. So did Stockton — that’s why it had to declare bankruptcy.
Plus, a richer city might not be willing to put up with what Stockton has already put up with. Murders there have doubled since 2009, because fewer officers can’t keep school-gang members from killing each other.
Stockton’s bankruptcy judge has agreed the city is “service-delivery insolvent” — meaning it needs to cut back things like health care to pay for cops.
New York union leaders have demonized Bloomberg for asking them to pay something for health care. But it is in older workers’ interest to make a deal — before the city one day makes retiree-health-care costs vanish.
Nicole Gelinas is a contributing editor at the Manhattan Institute’s City Journal.