Friday, April 29, 2011

Why I voted to control the cost of health insurance

Background

As a selectman, I supported a proposal to provide towns and cities with additional flexibility to manage health insurance costs by allowing adjustments to deductibles and co-payments to be made outside of collective bargaining. We argued for years to have the same control over these two elements of health insurance plans that the state enjoys.

The Massachusetts Municipal Association backed such a proposal and the Sandwich select board penned a letter to the governor and legislators a couple of years ago requesting their support to pass this critical reform which would allow towns and cities to save an estimated $100 million per year.

Over the past ten years, the state’s Group Insurance Commission (GIC) has managed to control its average annual health insurance cost increases to six percent. That is triple the inflation rate over the same period, but far less than the average municipal increases of 11 percent annually. In many towns, the entire 2½% property tax increase allowed under Proposition 2½ is used up to pay for health insurance premium increases.

Why do towns and cities struggle with annual premiums climbing at a rate nearly double that of the GIC? A significant part of the answer is that most of these plans feature zero deductibles along with co-pays at levels not seen in the private sector since the 1980’s. A deductible is the amount paid by the plan participant each year before insurance kicks in. Co-payments are paid by participants for office visits, prescriptions, emergency room use, etc.

How this can save money for everyone

Something lost in the heated discussions over the past two weeks is that adjusting deductibles and co-pays is not a one-way street. Those adjustments result in lower premiums. Here’s an example of how this can work:

Employee in Barnstable pays 50% of his Blue Cross Blue Shield family health insurance premium for a preferred provider organization (PPO) plan. This plan has a zero deductible. The equivalent PPO plan offered by the GIC is provided by Harvard Pilgrim and carries with it a $250/person, $750/family annual deductible. However, the premium is $150 less per month for the participant. In five months, the deductible is covered and the participant puts over $1,000 in his pocket from the premium savings over the next seven months. The town reaps savings as well—a win-win situation.

The House Ways and Means proposal differs from the governor’s proposal in that towns and cities are not forced to join the GIC. It is an option, but not a requirement, even if the municipal costs are higher than the GIC’s. The governor’s plan forces municipalities into the GIC if their costs are higher than the GIC’s most utilized plan. On Cape Cod, where Blue Cross Blue Shield is the preferred provider by many, a forced conversion to the GIC could be problematic because Blue Cross Blue Shield is not one of their offerings.

Why this is not a repeat of “Wisconsin

The situation in Wisconsin is far different than what we’re dealing with here:

1)      For one thing, the teachers there were paying an average of six percent of their health insurance premiums and were making no contribution at all towards their retirement. Here, most public-sector employees are paying from 20% to 50% of their premiums and everyone is contributing to their pensions.

2)      The Republican-dominated legislature along with the Republican governor voted to strip the unions of all collective bargaining rights. The proposal in Massachusetts only deals with health insurance deductibles and co-payments; it puts the unions and a retiree representative at the table with management to bargain changes to deductibles and co-payments for 30 days; and it escrows 10-20% of the first year savings for use by the unions to assist members who are negatively affected by the changes.

3)      The House Ways and Means proposal does not affect collective bargaining with respect to the premium split (contribution rate), health insurance plan offerings (unless a town joins the GIC), waiting periods, or any other aspect of health insurance.

Is there a better alternative?

Can we accomplish these changes across the state under our current bargaining laws? In my opinion, and I base this on experience as a selectman and finance committee member, we cannot. And I do not come to this opinion because of bad dealings with unions in the Town of Sandwich.

In fact, my experience has been quite the opposite. Our municipal unions agreed to two consecutive years of zero cost of living allowance (COLA) increases in order to protect jobs during this economic recession. Firefighters, police, DPW workers, secretarial staff, and members of the other five municipal unions voted to sacrifice the increases in exchange for the town manager and select board’s promise to avert layoffs and we made good on that promise.

I am working to find answers to the larger issue of runaway health insurance costs but, in the meantime, we must put measures in place right now that will result in immediate relief for our towns and cities.

Conclusion

I understand the reaction by unions to this proposal, but not on the financial aspects of it. We will all come out ahead because granting municipalities this authority will close budget deficits and save jobs. Union jobs. Of that I am 100% confident.

Rather, the pushback goes to the core reason why unions exist, which is to collectively bargain wages, benefits, and working conditions for their members. Any diminishment of the right to collectively bargain is naturally going to be a fundamental issue for our unions and their members. I understand and respect that.

As a state representative, I have to weigh the overall benefit of moving forward with this plan, the benefit of saving money and jobs versus the curbing of collective bargaining rights on two specific elements of health insurance plan design.

I come down on the side of saving the jobs of firefighters, police, teachers, and other municipal workers.

5 comments:

  1. As a state employee, with GIC and non-union, I agree. Also just so everyone knows, not all state employees get raises, haven't seen one in three years!!!! But our insurance rates keep rising, and we keep doing our jobs. I might add we do it very well. Tired of unions getting raises, and not paying what all other working folks are dealing with, rising health costs. That's why I don't agree with our town employees getting raises. They may of volunteered to not take raises, but most folks aren't even given an option, they just don't get a raise!

    Sorry must be feeling a little grumpy this morning!

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  2. The example given of "an Employee in Barnstable" is far from an accurate representation of the reality of the vast majority of municipal employees. The reality is that under the GIC, or any similarly structured plan, the costs are simply being shifted to the employees in the form of exponentially higher co-pays. This is an effective reduction in wages, a large reduction. You don't need to be a CPA to understand that fact. Anyone with the ability to balance a checkbook can do the math for themselves (if they have access to the new co-pay structure) and see what their annual difference will be based on their normal use of services.

    Despite the representation of the previous poster, municipal employees don't "volunteer" to waive raises. The economy does affect public employees, and 0% COLA's are an example. Despite popular misconceptions, there are no "automatic" pay increases for public employees. All wage increases must be negotiated, and they are not given away for free.

    The provision of a 30 day negotiation window sounds like a phenomenal idea to anyone who has not participated in such negotiations. The reality is that a negotiating body would be very lucky to be able to schedule a single negotiating session of an hour or two in a 30 day window, nevermind successive sessions to give anything more than lip-service to the idea of representation.

    It is indeed true that the situation in MA is very different from what was happening in Wisconsin. Our elected officials would have done a great deal better service to their respective constituencies if they simply made a better attempt to explain the fundamental differences, rather than cave to the current cultural tidal wave of anti-public employee union sentiment that is fueled by media hype.

    As an aside, are all elected Officials and their respective staff members in the State currently required to participate in the GIC?

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  3. For me the legislation passed stacks up this way. Right now the state has the ability to make minor changes to health care plans for state employees without collective bargaining. For example, they can raise the co-pay. Towns don't have that ability so such things have to go through costly and time consuming collective bargaining. Why shouldn't the towns have the same ability to do what the state can in terms of cost avoidance measures. It is my experience that towns are very fair with their employees. I think there is a fairness principal here. If the state doesn't have to collective bargain for certain things, why shouldn't the town's have the same opportunity. This is not union busting. The union outcry looks to be very much in response to the national outcry, which I understand. But let's not have hype when we need practicality.

    A "0" is never "0". That's hype too. To get those zero's towns have to promise raises they can't afford if they have built in structural deficits like Sandwich. "0" is political nonsense. And Sandwich has fallen for it time and time again.

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  4. @Anonymous April 30, 2011 12:26 PM:

    The example of the Harvard Pilgrim plan that I used in my article is real and is based on the information found here:

    http://www.mass.gov/?pageID=afterminal&L=5&L0=Home&L1=Insurance+%26+Retirement&L2=State+Insurance+Benefits&L3=Health+Plans&L4=Active+State+Employees&sid=Eoaf&b=terminalcontent&f=gic_plans_harvard_indep&csid=Eoaf

    In fact, the $150/month savings I referenced is actually $162/month. I used $150 to make the math easier and to not obfuscate my point. As you can see, the co-pays listed are very reasonable. Most of my clients in my CPA practice pay far more for both deductibles and co-pays for private-sector sponsored insurance.

    Regarding your question: "As an aside, are all elected Officials and their respective staff members in the State currently required to participate in the GIC?"

    No. Many elected officials acquire health insurance through their spouses' plans or through their non-legislative jobs.

    If an elected official or a staff person chooses to be covered by a state subsidized plan then, yes, it must be a plan offered through the GIC. There are no plans reserved for legislators--unlike what is available to the U.S. Congress and Senate.

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  5. A general point:

    I don't quote statistics, dollar amounts, etc., in my blog without first having checked these things out. It would certainly be easier just to make stuff up, but incredibly irresponsible, especially for a CPA.

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