Detroit goes bankrupt—and hospitals, insurers may take a hit

Health insurers and hospitals that provide coverage or services to current and former city employees in Detroit could get stuck with millions of dollars in unpaid bills as the Motor City works its way through bankruptcy proceedings, Jay Greene reports for Crain's Detroit Business.

Background on the bankruptcy

Earlier this month—amid a scramble to find new savings—Detroit officials approved a plan to suspend health coverage for retirees. Instead, retirees will receive a $400 monthly increase in pension payments to purchase health insurance.

Then last week, Detroit became the largest U.S. city to file for Chapter 9 bankruptcy protection, succumbing to more than $18 billion in liabilities that built as Detroit jobs, residents, and tax revenue fell. However, Detroit Emergency Manager Kevyn Orr said there will be no further changes to health care benefits for the next six months for active Detroit workers and retirees.

Earlier, Orr had proposed shifting 30,000 workers and retirees off city rolls and into the Affordable Care Act's health insurance exchanges in order to offset $3.5 billion in unfunded health obligations.

Related: Troubled cities may dump their retirees into the exchanges

Payers may have to wait for payments

According to Greene, Detroit has been notoriously slow and often delinquent in paying premiums. He adds that the city reportedly owes millions of dollars to several health care payers, which might include Health Alliance Plan (HAP), Blue Cross Blue Shield of Michigan, and Total Health Care.

HAP—which was paid $26 million by the city in 2011—confirmed that it provides coverage to 7,000 Detroit workers, retirees, and family members. The company said in a statement, "Although we do not know the outcome that the Chapter 9 filing will have on the city's business and financial relationship with HAP, we will…continue to work with city leaders to find solutions to providing health care benefits during this transitional time."

Blue Cross—which was paid $208.1 million by the city in 2011—also lacked "information about future actions," but will continue to "monitor the situation" and provide customer services and claims processing for the Detroit group, according to Helen Stoijic, the insurer's director of corporate affairs.

Hospitals wary of future payments

Meanwhile, several area hospitals—including Henry Ford Health System, Oakwood Healthcare, and Beaumont Health System—said they did not yet know how the bankruptcy will affect their operations. However, they voiced concern about the consequences should the city fail to reimburse local health plans.

Oakwood CEO Brian Connolly said, "We are concerned about the potential effects a bankruptcy may have on our bond rating," adding that hospital officials are "hopeful the bankruptcy will provide the city an opportunity to reorganize without permanently damaging the many jewels, programs and services we Detroiters have all come to appreciate and love" (Greene, Crain's Chicago Business/Modern Healthcare, 7/29 [subscription required]; Susman/Pierce, Los Angeles Times, 7/19; Dolan, Wall Street Journal, 7/19).

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