Bill's Budget and Tackling Municipal Health Care Costs

New York Mayor Bill de Blasio released his first preliminary budget today for FY15-18. Thanks to an expanding economy and a series of programs to eliminate the gap (PEG) instituted by the prior administration, the budget is in significantly better shape than five years ago, during the depths of the financial crisis.

At the same time, significant risks remain, most notably 152 expired labor contracts with the city’s unions. Tonight, I want to focus on one piece of the budget that is tied to these contracts and continues to increase well above the rate of inflation/economic growth: the cost of public employee health care and fringe benefits.

While pension costs in New York have begun to level out after rising from $1.2 billion in 2000 to over 8 billion today, fringe benefit costs are projected to continue their upward trend.

Some budget watchdogs, including the Citizens Budget Commission, have noted that more than 90 percent of the municipal workforce [the author included] is enrolled in health insurance plans that require no employee contribution toward the cost of the premium for basic individual and family coverage. As a result, they have called for NYC’s employees to pay a portion of their health insurance costs—either through co-pays or direct premium sharing.

That may well be a reasonable step, especially with the Affordable Care Act’s emphasis on moving away from a pay-for-service model and toward a performance model that places some burden on the individual in order to nudge people toward making more cost-conscious decisions.

However, I want to note a few other ways to reduce health care costs that should be on the table as part of any collective bargaining negotiation. They are: (1) using the ACA as a bargaining chip with insurers; (2) cash payments in lieu of health benefits; and (3) wellness programs. Let’s take a closer look.

The ACA as a Bargaining Chip

On New York State’s Health Insurance Marketplace’s individuals in New York City who previously paid $1,000 a month or more for insurance are able to shop for coverage for as little as $308 a month.

Bear in mind that insurance offered on the Exchange is actually more comprehensive in certain respects than HIP/GHI, since those plans are grandfathered under the ACA and therefore do not have to provide free (i.e. no co-pay) preventive care to policy holders.

On the other hand, the City’s coverage provides more generous reimbursement of out-of-network care than many plans on the Exchange, so it may not be possible to reduce expenses all the way to the level of the Exchange.

Nevertheless, the City—with a $6+ billion book of business—should work with unions to negotiate rates that are similar to those offered on Exchange, while maintaining the high level of care that municipal workers deserve. Given that the City’s health insurance contract hasn’t been bid out in 15 years, this process is far overdue.

Cash Payments in Lieu of Health Benefits

Next, some local governments offer employees the option of a cash payment in lieu of health insurance if employees can provide evidence that they have alternative insurance (generally if their spouse/domestic partner has coverage that can cover them). This can be a win-win for employees and the City, since the “buyout amount” is much less than the health insurance premium the municipality would otherwise have to pay.

For instance, imagine that the City paid near $8000 in health care insurance premiums for “Policy Analyst A” in 2012. Policy Analyst A is young, healthy, and, perhaps more importantly, has a husband who works for the Federal Government and gets quality insurance. NYC could “buy out” that employee for, say, $2500, saving the City over $5000/year. The program would be totally on an opt-in, voluntary basis.

As detailed by New York State Comptroller Tom DiNapoli, many municipalities in New York State already employ this tactic. Schenectady County saved over $2 million between 2005-2008 and Saratoga County saved between $1.3-$5.1 million over a three-year span with just 200 workers choosing to opt for cash payments.

Wellness Programs

As detailed by the Pew Trusts, in Philadelphia, DC 47’s Health and Welfare Fund made a deal with its insurer: the Local would commit $2 million for wellness programs to improve health outcomes and forestall future treatment costs and if its members hit certain wellness targets, such as smoking cessation and diabetes testing, the Local would secure a 2 percent decrease in annual premiums from its health insurance provider.

The City and its unions should explore similar measures in negotiations with health insurance companies in the absence of a self-insured system, especially since the City already devotes significant resources to smoking cessation programs.