Detroit is facing bankruptcy, and Chicago wants to cut retiree benefit costs. Both are turning to President Barack Obama’s health-care overhaul in what could become a road map for cash-strapped cities.

The municipalities plan to end or limit health coverage for retirees under 65 who don’t yet qualify for Medicare, with the expectation they can get insurance in the exchanges opening Jan. 1 under President Barack Obama’s health-care law.

With U.S. cities facing rising benefit costs and billions of dollars in unfunded liabilities, more municipalities will consider moving retirees off city rolls and into the exchanges, even if they continue to subsidize the coverage, said Neil Bomberg, a program director at the National League of Cities in Washington.

“Cities and towns will be looking at ways to reduce those costs, and the exchanges may provide a very viable mechanism,” Bomberg said in an interview.

Coverage for about 7 million people expected to enroll in health exchanges next year will cost U.S. taxpayers about $26 billion, the Congressional Budget Office says. That figure nearly doubles a year later, and exchange coverage is expected to total $1.1 trillion through 2023. A spokeswoman for the agency, Deborah Kilroe, said in an e-mail that it has no estimate of how many people in exchanges will be retirees.

Attractive Option

Public and private employers began cutting coverage for former workers long before the 2010 passage of the Affordable Care Act, said Joel Ario, a former director of the federal Office of Health Insurance Exchanges. The new marketplaces, which can’t exclude people for pre-existing conditions and have tax subsidies, provide a safety net, he said.

“That will become an option that I think a lot of employers and a lot of cities would look at,” said Ario, now a managing director of Manatt Health Solutions, a Washington consulting firm that advises insurers.

The trend could reach the state level, said Scott Pattison, executive director of the National Association of State Budget Officers in Washington.

In Detroit, reducing benefits for 30,000 employees and retirees is part of Emergency Manager Kevyn Orr’s plan to avoid the largest U.S. municipal bankruptcy by erasing a $386 million deficit and attacking a long-term debt of at least $17 billion.