As administrators in Island towns begin to prepare their 2013 budgets, most anticipate level or reduced appropriations for the cost of insuring their employees.
While health care costs remain a substantial percentage of local budgets, new state legislation aimed at lowering premiums, while introducing co-pays and deductibles for employees, may allow Island towns to slow or reverse the dramatic increases in the cost they pay to insure town workers.
Down-Island towns, which employ larger workforces, reflect the most dramatic increases. An analysis of town appropriations in Edgartown, Oak Bluffs, and Tisbury illustrate the dilemma most Massachusetts towns face. The costs to insure town employees consume so much of the budget, town governments are left with a stark choice: raise taxes, or eliminate services to taxpayers.
In fiscal 2012, the current budget year, Edgartown expects to spend 25.6 percent more in total operating costs than it did six years earlier. Health care premiums for employees and retirees rose 40 percent over the same period. Employee and retiree health benefit costs now consume 9.4 percent of Edgartown’s entire budget.
In Oak Bluffs, the total operating budget was up 10.4 percent over the past six fiscal years. Employee and retiree health benefits cost taxpayers 53.7 percent more than they did six years ago. Health benefit costs now represent 10.7 percent of the entire budget.
Tisbury’s operating budget rose 27.8 percent over the same six-year period. Employee and retiree health costs for fiscal 2012 were 14.1 percent of the total budget, up 36.3 percent over the past six years.
The trend is the same in all three towns. The number of employees has remained relatively steady, while budgets rose dramatically over the same period, driven in large part by rising health care costs.
Change of plan
Over the past two fiscal years, health care costs were approximately level in Edgartown and Tisbury, but the dramatic increases continued in Oak Bluffs.
All three towns have made relatively small-scale adjustments in the health benefits they offer municipal employees. Towns have trimmed the choice of health plans to eliminate the highest cost plans, and shifted eligible retirees to the federal Medicare plan while providing less expensive supplemental insurance to fill in coverage gaps.
“Over the last couple of years, we’ve been on a real campaign to get everyone on the lower cost plans,” Edgartown town administrator Pam Dolby said. “It’s working.” She said the savings have allowed Edgartown to keep medical insurance costs flat in the last two budget years.
Bigger changes are in the works. In July, state lawmakers enacted a health care reform package that is expected to lower significantly the cost of health care premiums for many Massachusetts towns. It will also allow towns to require plans with co-pays and deductibles, like those most common for other government workers and with the private sector.
The law allows municipal employee unions to participate in an expedited collective bargaining process. If the town and its unions cannot agree on the transition to new medical plans after 30 days, including mitigation that would return up to 25 percent of the savings to employees, an arbitration panel would decide the terms in which the town could change to the new plans.
All Island towns buy health insurance through the Cape Cod Municipal Health Group, a coalition of 52 towns and other government units that form a purchasing unit with more leverage to negotiate with health care providers than a single town possesses.
Local officials believe the regional purchasing group serves the needs of Cape and Island health consumers better, because the member towns can better tailor health care plans for the unusual market, which includes many small towns, sometimes isolated by geography.
In October, the Cape Cod Municipal Health Group member towns and government bodies voted to change medical plan offerings to more closely reflect the state General Insurance Commission (GIC) plan. Under the new law, towns can opt for plans outside the GIC, if they can demonstrate that they will be reasonably similar in costs.
“There are some things about GIC that don’t work on the Island,” interim Oak Bluffs town administrator Bob Whritenour said. “We have so few doctors, you can’t make a tiered network work. We’re much better served by a regional joint purchasing group, rather than just joining the GIC.”
The purchasing group is now crunching numbers to determine what the new plans will cost. Local officials expect to see reduced health care costs in next year’s budget.
“The program clearly has some cost-saving components,” Mr. Whritenour said. “I’ll be looking forward to seeing those numbers. The initial estimates we had, there was somewhere between a 10 and 15 percent reduction in premiums.”
Ms. Dolby is also waiting to see pricing for the new plans.
“I’m not looking for a whole lot,” Ms. Dolby said. “Employees will be picking up deductibles and co-pays. They are supposed to see lower premiums, the towns are supposed to see lower costs. We’ll see how that works.”
Plan to plan
Comparing public-sector salaries and benefits with those in the private sector is tricky business, but an independent study released this year concludes that Massachusetts towns pay significantly more than the state or federal government pays to insure workers, and far more than private sector employers.
“We are no longer able to invest in local aid or higher education or public health or the environment,” wrote Paul Grogan, president of the Boston Foundation, which commissioned the study. “The resources necessary for these investments are being consumed by the cost of maintaining benefits at rates that could be much lower.”
Health care consultant Bob Carey wrote the study for the Massachusetts Taxpayers Foundation, which describes itself as a non-partisan public policy organization. The study compared premiums and cost-sharing for 31 specific plans: 28 municipal plans, two state plans, and one federal plan. The municipalities studied do not include any Island towns, but represent cities and towns of various sizes. The largest municipality surveyed was Boston, the smallest, Littleton.
The study found that municipal health plans in the towns surveyed are dramatically more expensive because very few of them employ cost sharing in the form of deductibles or co-payments for basic medical services and office visits, an element of health care coverage that has become standard in most private sector employer sponsored plans.
“The premiums for municipal plans are staggering when compared with private sector plans in Massachusetts,” Mr. Carey writes in the study. “On average, these municipalities have annual premiums for individuals that are 39 percent, or nearly $2,200, more than their private sector counterparts. For family coverage, municipal premiums are 37 percent — or $5,600 — higher.”
The study concludes that premium costs are high because few municipal plans surveyed require any co-payment at all for major medical services, “including the three largest cost drivers of medical care: high-tech imaging (e.g., MRI, CT, and PET scan), outpatient surgery, and inpatient hospitalization,” Mr. Carey concluded in his study. “Combined with the lack of deductibles, many municipal employees receive essentially free access to sophisticated health care.”