Kevyn Orr (Detroit News file photo)
Detroit — City retirees sued Emergency Manager Kevyn Orr on Tuesday over his “devastating” cuts to lifetime health insurance benefits, ahead of the start of today’s trial over whether Detroit qualifies for bankruptcy protection.
The bankruptcy eligibility trial at the federal courthouse in Detroit is expected to draw scores of city retirees and workers protesting Orr’s stated intent to use the Chapter 9 code to shed billions of dollars in legacy costs.
Orr has exerted his powers as emergency manager to impose major changes to retiree health insurance and eliminate dental and vision coverage, putting retirees on edge as Detroit’s3-month-old bankruptcy case is fast-tracked in court.
“It’s scary as hell,” said Michael Wells, 66, of Detroit, a retired librarian with a $37,000 annual pension. “We’re all panicking because we look at this as the beginning of the cuts.”
The trial will focus on Detroit attorneys’ arguments that the city is insolvent, the bankruptcy filing was properly authorized by Gov. Rick Snyder and city officials made a good-faith effort to negotiate with creditors before filing the petition.
Retiree groups, the city’s pension funds and labor unions argue Detroit is ineligible for bankruptcy because it may lead to reductions of contractual pension obligations in violation of Michigan’s Constitution. Arguments are expected to last this week and go into Monday and Tuesday if necessary.
A new battle is emerging, meanwhile, over whether the city is contractually obligated to provide 23,500 retirees and their spouses with premium health insurance for life. Orr and the city were sued Tuesday by the official committee representing retirees in the bankruptcy case, the Detroit Retired City Employees Association, the Retired Detroit Police and Fire Fighters Association and the American Federation of State, County & Municipal Employees.
Retiree groups filed the suit claiming a federal constitutional breach of contractual benefits with U.S. Bankruptcy Judge Steven Rhodes. He will decide whether Detroit can proceed in bankruptcy to pare down $18.5 billion in debts.
During bankruptcy, all litigation against the city is halted, but Rhodes can allow parties to pursue lawsuits or consider the suit himself, said John Pottow, a bankruptcy law professor at the University of Michigan.
Orr plans to end traditional health insurance for retirees younger than age 65 and send them a $125 monthly check to use toward purchasing private health insurance. That would leave 8,000 former city employees with “inferior coverage” that costs more and provides less coverage, according to Matthew Wilkins, a Birmingham attorney representing the retiree committee.
“The impact of the city’s decision on the retirees will be devastating,” Wilkins wrote in the lawsuit. “To obtain comparable healthcare benefits, many of them will be forced to go out of pocket an additional several hundred dollars per month and several thousand dollars per year.”
Under Orr’s plan, disabled retirees younger than age 65 will get a $200 monthly payment for their personal health insurance needs, while more than 10,500 retirees older than 65 will be offered a Medicare Advantage plan with city-funded premiums.
The lawsuit alleges retiree deductibles will quadruple from $175 to $750, co-pays and out-of-pocket costs will double and prescription drug co-pays will “sky-rocket.”
“The city’s decision to walk away from its retirees, all of whom devoted large portions of their gainful years working on its behalf, is unconscionable.” Wilkins wrote.
The impact of the changes is starting to set in for retired police officers Debra and Steven Godfrey of Livonia. The husband, 64, will go onto Medicare next year, but his wife faces greater challenges in securing affordable insurance.
Debra Godfrey, 59, has battled systemic lupus since 2005. That’s one year after she retired after 27 years on the force with a $30,000 annual pension. The autoimmune disease has hospitalized her nearly 10 times and requires a heavy dosage of expensive prescription drugs, most of which are covered by her current retiree insurance plan.
She said the $125 check may put only a small dent in a high-cost insurance plan with a $12,000 out-of-pocket maximum.
“With the deductions and all that, it’s going to eat up my entire pension,” Debra Godfrey said.
Orr has said the city faces an estimated $5.7 billion unfunded liability for health insurance and a $3.5 billion shortfall in the city’s two pension funds.
“The city cannot afford the dramatic costs of healthcare under existing plans that would be rated ‘Platinum’ under the Affordable Care Act ...,” Orr spokesman Bill Nowling said Tuesday in a statement. “Unlike pensions, no money has ever been set aside to fund retiree healthcare costs, and the city faces an unfunded healthcare liability it cannot afford.”
Even though Orr said before he filed for bankruptcy July 18 that pensions had to be cut, the city and state’s attorneys have repeatedly argued to the judge that simply being granted bankruptcy eligibility won’t result in pension cuts. After eligibility, Orr would be empowered to propose a plan to reduce Detroit’s debts, including any possible reductions in pensions.
Like many other retirees, the Godfreys are following Detroit’s bankruptcy with fear and trepidation about what the end result might mean to their bottom line, especially since police and firefighters could not pay into Social Security during their public service.
“It’s an understatement to say we’re concerned at the moment,” Steven Godfrey said. “It’s just like, oh, my God, where are we going to be in two months?”