The Utility of Trouble
Leveling the Playing Field: Giving Municipal Officials the Tools to Moderate Health Insurance Costs
By Bob Carey
The Boston Foundation
February 2010
The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation… The Foundation is made up of some 900 separate charitable funds established by donors either for the general benefit of the community or for special purposes. The Boston Foundation also serves as a major civic leader, provider of information, convener, and sponsor of special initiatives designed to address the community’s and region’s most pressing challenges.
Executive Summary (excerpts)
The drop in state tax revenues and the subsequent reduction in local aid to cities and towns have forced municipal governments across the Commonwealth to reduce services, impose layoffs, and increase taxes and fees to balance their fiscal 2009 and 2010 budgets. The outlook for fiscal 2011 is hardly encouraging. Compounding this problem is the continued escalation in operating and overhead costs, including the enormous cost of providing health insurance benefits to municipal employees and retirees.
One option for communities to lower their health insurance costs is to join the state’s Group Insurance Commission (GIC), which manages health benefits for state employees, retirees, and their spouses and dependents. The GIC is the largest provider of employer-sponsored health benefits in the Commonwealth, covering over 320,000 individuals.
Over the past ten years, the GIC has moderated the growth in its health insurance premiums by increasing members’ point-of-service cost sharing and offering health plans that utilize tiered provider networks. During this same period, the municipal health plans reviewed in this report remained largely unchanged, with only minor increases in point-of-service cost sharing and no use of tiered provider network plans.
The difference in plan designs – that is, higher point-of-service cost sharing in GIC plans compared to municipal health plans – is the main reason why municipal health insurance premiums are higher than the state’s. This analysis highlights the differences in premiums to demonstrate the would-be savings available to municipalities from altering plan designs.
It is important to qualify that these estimated savings presuppose that cities and towns would not be required to make any associated tradeoffs by way of concessions to unions to secure labor approval for joining the GIC.
The irrefutable point, however, is that there could be significant savings for cities and towns – in a time of severe fiscal challenges – if they were allowed to join the GIC apart from collective bargaining. Furthermore, if municipal managers were provided the same authority that state managers possess to modify plan designs outside the collective bargaining process, it is likely municipalities could attain premium savings comparable to those realized by the GIC.
A prime example of the effect of the differences in management rights occurred earlier this year. A portion of the savings estimates noted above is due to mid-year benefits changes that the GIC made to address a budget deficit in FY 2010 resulting from higher than anticipated health care costs. The benefit changes, approved by the Commission in November 2009 and effective February 2010, increased the amount of cost sharing borne by enrollees and lowered health insurance premiums by an average of 5.5%. These mid-year changes further increased the differences in premiums and point-of-service cost sharing between the health benefits provided municipal employees and those provided state employees.
While the growth in municipal health insurance premiums can be reduced by increasing point-of-service cost sharing, enrollees will incur more out-of-pocket expenses as they utilize the health care system. As this report reveals, the higher cost sharing of the GIC plans compared to municipal health benefits would shift more of the costs to enrollees, although a portion of these expenses would be offset by a reduction in health insurance premiums.
Approval of changes to the GIC’s health benefits requires a majority vote of the Commission. And, while union and retiree representatives serve on the 15-member Commission, they make up a minority of the membership. Therefore, support from union and retiree representatives is not needed to approve the package of health insurance benefits provided to state employees and retirees.
Recommendations
1. Level the playing field between state and local health benefits management by removing the requirement that municipal officials must collectively bargain plan design changes
2. Bring the health benefits provided to municipal employees into line with the health benefits offered state employees and retirees
3. Require all municipal retirees who are eligible for Medicare to enroll in Medicare Part B as a precondition for receiving health benefits from the municipality
4. Adopt a premium contribution strategy that incents members to select more cost-effective health plans
5. As point-of-service cost sharing increases, limit members’ financial exposure by putting in place an out-of-pocket maximum or funding a Health Reimbursement Account (HRA)
The Utility of Trouble (79 pages):
http://www.tbf.org/uploadedFiles/tbforg/Utility_Navigation/Multimedia_Library/Reports/UtilityOfTrouble_2010.pdf
Comment:
By Don McCanne, MD
This report from The Boston Foundation contains two very important fundamental proposals designed to reduce health care costs for municipal governments in Massachusetts. One of them directly relates to health policy, but the other, which is perhaps even more important, relates to the freedom of workers to negotiate for a level of total compensation that meets their most basic needs.
First, the health policy lesson. This report adds another invidious voice to those who would control costs for those paying for health benefit programs, not by reducing health care costs, but by shifting those costs to the very individuals who need health care.
As has already happened with most pension plans, health benefit programs are shifting from defined benefit programs to defined contributions. Although they are passed off as providing choice of “more cost-effective health plans,” that is merely a euphemism for requiring workers to pay the full balance of premiums over that of the basic spartan plans.
The increases in “point-of-service cost sharing” again is merely shifting more costs to worker-patients through higher deductibles, co-payments, and ever increasing coinsurance. Anthem Blue Cross has some plans with coinsurance as high as 70 percent, meaning that the insurance pays only 30 percent of only the allowed charges.
We don’t need to repeat here the impact of making individuals pay more of the premiums and greater cost sharing. We’ve heard enough about the financial hardships and physical suffering that these health financing policies cause.
But what we should repeat here is that the proposal before Congress has the same impact. Individuals will have to pay the full premium differences for plans above the basic plans with a low actuarial value, and plans will continue to compete on premiums by using innovations to shift more costs to patients, especially through increased cost sharing.
On the second point, we’ll depart from our usual narrower topic of health policy, and touch on one of the most important issues of these times – the successful attack on social solidarity that has shifted the nation’s wealth up the economic ladder, now leaving middle-income Americans struggling to make ends meet.
With the shift from a manufacturing economy to a service economy, the attack on unions and collective bargaining has been unrelenting. Even government employees’ unions and teachers’ unions have had considerable difficulties maintaining clout.
Look at the recommendations of The Boston Foundation. Take away the health benefit programs that the workers paid for through forgone wage increases. When substituting the cheaper plans, the municipalities should not “make any associated tradeoffs by way of concessions to unions.” Most of the premium reductions will benefit the municipalities with very little going to the workers. Make sure that union and retiree representatives remain a minority of the state’s Group Insurance Commission (GIC) so that their demands can be ignored. This is class warfare, and the rich guys are winning.
The PNHP leadership and others in the policy community have warned that the Massachusetts reform efforts would fall short, and particularly would fail to address the cost issues. This Boston Foundation report is simply one more example of why reform should not have been based on a business model of a market of private plans. It should have been based on the better and less costly public social service model that has a mission to assist everyone in obtaining the health care that they need.
Now President Obama and Congress are making the same mistake by following the same primrose path to the everlasting bonfire. People are going to get burnt.