Towns tackle employee health care costs as insurance rates continue to skyrocket

New legislation will help municipalities keep the lid on rising health care costs

Town employees to take on deductibles, increased co-pay

By Gerald Rogovin

Legislation signed last July by Governor Deval Patrick that gives cities and towns more control over skyrocketing health insurance costs has already had a strong impact across Massachusetts.

It is expected to reshape health insurance for municipal employees on Cape Cod and Martha's Vineyard in the next 15 months.

The new law will allow towns in the region, by vote of either their town meetings or selectmen, to create plans that could significantly reduce costs in the first year after adoption. It will also make it easier for the towns to bargain with their unions on health insurance.

Estimates vary. But towns could save as much as 13 percent in the first year. A quarter of that amount would go to employees and retirees. This is based on gross estimated savings plus what could be saved as a result of lower rates.

Towns can opt to join the state Group Insurance Commission plan, or create  GIC "look-alike" plans of their own. The Cape Cod Municipal Health Group, the joint purchasing organization for Cape towns since 1987, will take the second approach.

Francis (Skip) Finnell, chairman of CCMHG's steering committee and a founder of the organization, described the regional group as having "more robust" programs than GIC. "We have wellness and health risk reduction programs. GIC doesn't have those. We have a zero co-pay prescription drug import program. GIC doesn't have that either."

"GIC does not administer COBRA governmental units. That's a built-in service in our plan. Employers can vote on our decisions. But they have no control over what happens with the GIC," Finnell said.

Another reason the steering committee will develop its own regional plan is that there are too few hospitals and providers here, he noted. "The only hospitals on the Cape and Islands are Cape Cod Health Care in Hyannis, Falmouth and Vineyard Hospitals," he said.

"Back in 2002, employee health insurance costs represented 7 percent of the total budget. This year it's 13 percent. This isn't voodoo statistics. It's all too real." - Bud Dunham, Sandwich Town Administrator

Concerns were expressed on the Vineyard that shifting more of the costs from the towns to their employees would be burdensome. Chilmark Selectman Warren Doty told the Vineyard Gazette, "Our employees are middle-class folks...[this change] is crunching down on regular, working folks."

But Sandwich Town Administrator Bud Dunham had another view. "In FY2002, we paid out $3.3 million for health insurance for town employees. In FY 2012, it's $8.9 million, an increase of 170 percent. Our total budget for that period rose by 40 percent. Even a town manager with a calculator can't figure out how to break even with that equation," he said.

In an early look at cost estimates for health insurance in the next fiscal year for the town's 583 active employees and 169 dependents, Dunham recalled that a $2 million shortfall appeared probable. "Without an override or substantial cuts, we didn't think a balanced budget was possible," he said.

"Back in 2002, employee health insurance costs represented 7 percent of the total budget. This year it's 13 percent. This isn't voodoo statistics. It's all too real," Dunham added.

None of the specific costs will be known until February for deductibles and co-pays. But, based on current information, Dunham thinks that Sandwich can reduce its health insurance costs in the plan's first year by 12-13 percent, or $1 million. Seventeen different employee unions will be involved in negotiating with the town.

Sandwich ranks third behind Barnstable and Falmouth in the region in the number of employees. Yarmouth, for example, covers 208 employees with health insurance, but no retirees. Its current budget is $2,951,715, according to Finance Director Sue Milne.

Before the new state law was passed last July, towns were prohibited from making any kind of change in setting costs, as the result of an arbitration case involving Dennis firefighters, according to Dunham.

CCMHG's steering committee took a series of three votes in late September and early October to determine which way the organization would go. The final vote, on October 5, adopted the GIC look-alike approach. Of 36 voting, all but two favored adoption. Provincetown was the only town in opposition.

The organization represents all of Barnstable County's towns and Martha's Vineyard, which merged with it, and has two seats on the steering committee. Nantucket has yet to decide how it will proceed, according to Finnell.

"With health care costs going up by about 10 percent a year without a corresponding rise for co-pays, there is a strong need to rebalance." Carol Cormier, VP of Group Benefits Strategie

Changes to be voted in coming months will keep options offered by Harvard Pilgrim and Blue Cross Blue Shield. No benefits are expected to change. But the cost to employees certainly will, according to Carol Cormier, Vice President of Group Benefits Strategies in Auburn, Mass., CCMHG's consultant. She pointed out that health care costs have risen swiftly in recent years. But co-pays and deductibles for municipal employees have remained almost fixed.

There are no annual deductibles for service currently. But they are expected to be adopted when the regional plan is established. Estimates suggest $250 for an individual to no more than $750 for a family will be the initial schedule.

Office visit co-pays are expected to rise, according to Cormier. They would double to $20; go from $10 to $35 for a visit to a specialist; from $20 to $100 for an emergency room visit; and from zero to $500 for an inpatient admission to a hospital.

"With health care costs going up by about 10 percent a year without a corresponding rise for co-pays, there is a strong need to rebalance," Cormier said.

About 10,500 town employees on the Cape and Islands, 21,000 including dependents, will be covered by the municipal health group plan, Finnell said. "While we won't know until early 2012 what the costs will add up to, this new law will help our towns."

"It's not all we wanted. But something had to be done. Municipalities all over the state were going broke before the new law was adopted.It had become a budget-buster to insure the health of town employees. It will now be evened up a bit," Finnell observed.

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