City health plans could be vulnerable to budget squeeze
The city and its School Committee are headed into budget seasons, and members have warned repeatedly that deficits — and very likely cuts in services, staff or both — lie ahead. The committee already has an estimate for its shortfall in the next fiscal year: $3.7 million.
With this in mind, and the possibility budgeters might look to trim city employee health packages to squeeze out some savings, Personnel Department director Michael Gardner was asked for some information on the plans.
Before getting to the actual figures:
It’s far from certain the plans would be on the block; for one thing, they’re part of contracts with the city’s 18 collective bargaining units that are locked in until August 2011 or August 2012, and by then Cambridge budgets could be seeing surpluses again.
But at the moment, if the committee doesn’t take action, there’s a projected $10.9 million shortfall just in the school district in fiscal year 2015. So benefits may yet be on the block before that.
The only reason to consider the health plans for cuts is that some of Cambridge’s well-bargained benefits edge toward “Cadillac” territory.
During debate over a nationwide health care bill, that was a much-used term for what President Barack Obama said were “plans that don’t make people healthier, but just take more money out of their pockets because they’re paying more for insurance than they need to.” (The United States spends more money on health care per person than any other country but has below-average life expectancy rates, while countries such as South Korea spend far less with better results.)
The U.S. Senate’s version of a health bill would tax providers of Cadillac health plans, not employees who have them, but it was feared consumers would suffer anyway when health plans charged higher premiums to make up for the loss. National unions got Capitol Hill to exempt more people from the tax by raising the levels at which the tax kicks in, though, and now it looks as though the tax may not be in the health bill reaching Obama’s desk for signing — if a bill ever does.
Less than a Cadillac
Negotiators such as AFL-CIO President Richard Trumka argued that a tax was unfair because workers had negotiated better benefits packages in exchange for lower wages. His reasoning won out.
Even if the tax stays in, the efforts of Trumka and others raised the proposed threshold for individuals to $8,900 from $8,500. Some Cambridge health plans for individuals cost $8,672 per year, by Gardner’s calculations — a figure once vulnerable to the tax, and now not.
Union efforts also raised family plans to $24,000 from $23,000. Some Cambridge family plans cost $22,117 per year, meaning they would not have been taxable even under the original limits.
Those figures are in Blue Choice, the most expensive of the city plans open to employees, with Tufts, HMO Blue and Harvard Pilgrim getting progressively cheaper; but even more expensive than Blue Choice is Advantage Blue, which is open only to retirees, Gardner said last week. Retirees who are still too young for Medicare increase costs.
What drives city expenses
The city maintains 3,386 non-Medicare health plan contracts including individuals and families, with 759 of those being for retirees. There are another 1,486 Medicare-eligible contracts, according to Gardner’s data, and “in the Medicare world, there’s no such thing as a family contract.” A Medicare-eligible retiree and Medicare-eligible spouse each get their own.
“Some of our Medicare plans by law have to be premium-based, so we’re actually paying a premium for our coverage, but most of our plans are ones that we pay the actual costs plus an administration charge,” Gardner said. “So essentially we’re self-insured and the carriers are doing claims administration and adjudication and that sort of thing.”
Health benefits as a whole, with expenditures for this fiscal year projected at $51.5 million, may look attractive to budget cutters. But implicit in what Gardner was saying is that the complexity of the city’s plans, which is driven by employee demand, embodies a message budget cutters should heed.
“It’s a benefit for both employees and the city to be able to treat health insurance for what it is: A very important part of an employee’s wage package,” he said.