Detroit delays retiree health care cut due to Obamacare site woes

November 5, 2013: 12:19 PM ET
detroit bankruptcy protests
Protestors outside the bankruptcy court in Detroit arguing against proposed cuts in pensions and other benefits.
NEW YORK (CNNMoney)

Problems with the Healthcare.gov website are causing Detroit to extend health care coverage for 7,500 of its retirees set to lose it after Dec. 31.

As a cost-cutting measure, the bankrupt city announced in October that it would end health care coverage for retirees not yet eligible for Medicare. Instead, those retirees would get $125-a-month stipend and be expected to buy coverage on their own, either through the Obamacare exchanges or a current employer.

The other 16,500 retirees who are eligible for Medicare will have their supplemental plans changed significantly, with much higher deductibles and out-of-pocket costs. That change is still set to take effect Jan. 1.

A week after the announcements, pension fund lawyers filed a complaint with the bankruptcy court seeking to block the proposed changes in the health care coverage. At a court hearing Tuesday, a lawyer for the city announced the extension, citing the problems signing up for coverage that many people are having when using the Obamacare sites.

Related: Top four Obamacare complaints

The city has been paying between $604 to $1,834 a month for their health care coverage for married retirees and their spouses who are not eligible for Medicare, according to court filings. That plan covers about 90% to 95% of their medical costs.

The court filings said that using the "silver" Obamacare plans, which cover only 70% of medical expenses, will cost them as much as $350 a month in additional premiums after the $125 monthly stipend.

Why Detroit filed for bankruptcy

The cost of retiree health care is one of the major sources of the city's $11.5 billion in unsecured debt , which was behind the decision by Emergency Manager Kevyn Orr and Gov. Rick Snyder to file for bankruptcy in July. The pension funds themselves are also underfunded by an estimated $3.5 billion.

Orr, who has been in charge of the city's finances since March, has proposed cutting the unsecured liabilities to about $2 billion as part of the reorganization plan. That would mean deep cuts in both health care and pension benefits for retirees. But attorneys for retirees and the pension funds argue the Michigan state constitution protects those benefits from being cut.

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