Boston–Steeply rising health care costs are forcing cuts in municipal services to residents across the state, but communities could save significant amounts of money by changing the way they provide health care to municipal employees. That is the lead finding in an Understanding Boston report released today by the Boston Foundation. Potential savings range upward to well over $40 million dollars a year in the case of the City of Boston, according to new research, which includes five specific recommendations that could be used by communities across the Commonwealth.
According to the research, Boston could have reduced its 2010 health premiums by between 15.6 and 17.1 percent, for a savings of between $41.4 and $45.4 million by joining the state’s Group Insurance Commission, more widely known as the GIC. The City is unable to join the GIC, however, without first receiving 70% union approval, according to state law. This requirement and the associated tradeoffs involved are a major barrier to municipal participation in the GIC. Several cities and towns including Boston have called for cities and towns to have the same ability as the state to design health insurance plans.
“At a time when Boston may be forced to close as many as 10 branch libraries because of budget deficits, this report offers a strategy to cut costs, instead,” said Paul S. Grogan, President and CEO of the Boston Foundation. “These research findings hold out the possibility of pushing back against the seemingly inexorable rise in health care costs.”
To put the potential savings in Boston into perspective, the amount that could be realized from use of the GIC strategy could pay for one of the following:
“The growing cost of health care is a job-killer,” said Grogan. “We have union leadership that is reluctant to see changes, but how can they accept a situation that makes municipalities grow steadily weaker and less able to maintain the workforce they need? We need unions to align themselves with the communities they serve.”
The report, titled The Utility of Trouble: Leveling the Playing Field: Giving Municipal Officials the Tools to Moderate Health Insurance Costs , was written by Bob Carey, former Director of Planning and Development for the Commonwealth Health Insurance Connector Authority. Undertaken for The Edward Collins Center for Public Management at the McCormack Graduate School at the University of Massachusetts Boston. The report was commissioned and published by the Boston Foundation.
Included in the report’s findings are calculations of the potential savings three eastern Massachusetts communities—including Boston—could have achieved in the current fiscal year by joining the GIC, which became possible in 2007 as the result of changes in state law, and which mirror’s the strategy already in place for state employees and retirees. According to the report, Cambridge would have saved between $3.7 and $4.4 million. Marshfield would have saved between $450,000 and $530,000. The town of Melrose actually did join the GIC in July of 2009, and as a result, is in line to save $1.6 to $1.8 million on its health insurance premiums this year, a reduction of between 15.8 and 17.4 percent.
Despite the significant savings, only 19 of 351 cities and towns throughout the Commonwealth have elected to join the GIC since 2007. One of the main reasons for this small number is the requirement that approval be given by 70 percent of a community’s unions before it can join.
“Skyrocketing employee health insurance costs contribute to the fiscal stress facing each Massachusetts city and town and this report shows that significant relief is available if municipalities have the same access to the Group Insurance Commission or administrative plan design as the Commonwealth,” said Sam Tyler, President of the Boston Municipal Research Bureau. “The findings in this report clearly demonstrate why the same management of employee health insurance should be the state’s top priority to help cities and towns.”
Among the recommendations made in the report are the following:
“The last three years have demonstrated that the Group Insurance Commission can make a dramatic improvement to municipal finances while still providing quality health care insurance to employees,” said John Hamill, Chairman of Sovereign Bank Massachusetts. In 2005, Hamill served as Chairman of the Municipal Finance Task Force which raised awareness about the soaring costs of health care and the impact on the state’s cities and towns. “Cities and towns like Springfield, Melrose, and Swampscott have saved millions—and we need to find a way to make easier for other communities to either join the GIC or manage their health insurance costs directly.”
“This report provides key data clearing showing the savings municipalities could realize by moving to the GIC,” said David Sparks, Interim Director of The Edward Collins Center for Public Management at the University of Massachusetts Boston. “It’s a path every community should consider when looking for cost-efficiency measures in their budgets.”
The greatest impact from adoption of the GIC is the result of its ability to adjust health benefits provided to employees and retirees without negotiating plan design changes with the public sector unions. In the case of the state, this has made it possible to moderate the growth in the cost of premiums by increasing point-of-service cost sharing and by adopting a tiered provider network.
In addition to the savings that GIC or a similar cost-cutting strategy offers, additional savings can be garnered by other changes. For example, the two communities noted above with the greatest rate of potential savings—Boston and Melrose—did not require their Medicare-eligible retirees to enroll in Medicare Parts A and B as a precondition for receiving health coverage. In the case of Boston, moving eligible retirees into the Medicare plans would result in about $5 million in immediate and direct savings to the City without requiring the adoption of the complete GIC package and without any change in health benefits for retirees. Municipalities can make this change without input from employee unions.
Premiums vary depending on the specific health plan within the GIC selected by a municipality, which means savings in aggregate would vary. The final cost to a community that chooses to sign up for the GIC will also be affected by the share of the premium paid for by the municipality and the share paid for by each individual employee or retiree.
Higher point-of-service cost sharing in the GIC mans that employees and retirees would face higher out-of-pocket costs. However, total employee costs could be lower, depending on choice of plan and the way the premium costs are shared between the municipality and the employees. The range in impact on individual retirees and employees in communities that elected to join the GIC is wide depending on the plan selected and the amount of the premium paid by the employee or retiree.
The Boston Foundation, Greater Boston’s community foundation, is one of the oldest and largest community foundations in the nation, with assets of $763 million. In Fiscal Year 2008, the Foundation and its donors made close to $79 million in grants to nonprofit organizations and received gifts of $113 million. 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. For more information about the Boston Foundation, visit www.tbf.org or call 617-338-1700.