Jamestown’s healthcare costs
As national discussion on healthcare reform stalls in gridlock, perhaps our more immediate concern as taxpayers should turn to what is happening with healthcare costs locally.
Last year, Jamestown entered into a three-year relationship with Governmental Health Group of Rhode Island, a collaborative of nine municipalities who purchase jointly with Blue Cross/Blue Shield. Despite this effort to control costs, Jamestown’s initial medical renewal for July 1, 2010 is up 13.2%. Currently, local medical costs are trending at about 10%.
If accepted, combined town and school healthcare costs could increase $217,000. With the economy in turmoil and hardships surrounding us, we cannot and should not accept this additional cost burden.
This increase shouldn’t surprise us. There are no cost-control features within the current healthcare plan designs. Jamestown’s benefits are on par with other municipalities, but are richer in design and costs compared to private employers.
Why the differential? Private employers have kept pace with healthcare inflation by gradually changing plan designs and shifting costs annually. Most private employers find it necessary to bid health insurance annually and seek competitive proposals from the market.
Unfortunately, municipal union collective bargaining agreements are crafted to specify a single insurance carrier (i.e., BCBS) and product type (i.e., Healthmate), or contain restrictive language that prevents annual bidding, making it nearly impossible to switch carriers unless equivalency is proven. Benefits and plan co-pays are specified and cannot be changed even if cost increases result.
Many private employers have adopted consumer-driven plans like health reimbursement arrangements and health savings accounts. These plans exchange premium savings for higher deductibles. With savings of 10 to 25%, employers partially reimburse deductible expenses or fund savings accounts for employees. These plans better engage consumers in healthcare decisions, leading to more prudent healthcare spending.
Many employers offer wellness and disease management programs to help employees and families adopt healthier lifestyles and change behavior – thereby reducing health risks and ultimately controlling future healthcare costs.
Jamestown cannot solicit proposals from United Healthcare or Tufts because it is locked into the GHGRI contract for two more years. Realistically, Jamestown may not be ready for consumer-driven plans, but there are measures we can take right now to better control costs moving forward and still provide a comprehensive benefit for employees.
The town’s four collective bargaining arrangements with police, town employees and teachers expire on June 30, 2010. The town’s intent is to negotiate new three-year terms. Bear in mind, healthcare costs will still increase annually, so whatever is negotiated now must be strong enough to support additional increases for three more years.
The Taxpayers’ Association of Jamestown has made several meaningful cost-saving recommendations to town management and to the Town Council including:
• Increase all employee premium co-shares to 20%. Currently, coshares vary between zero and 20% based on tenure. (There is state legislation pending that will require all public employees to pay 25% of medical premiums). The town should not wait – changes are needed now. If adopted, these alternative co-sharing arrangements are still ahead of what average employees in private industry pay.
• Add a deductible to the plan. The statewide average for private employers is $500 for individuals and $1,000 for families.
• Update prescription co-pays from $5/$10 to $7/$30/$50/$75. This is the marketplace norm.
• Eliminate BCBS Classic insurance from teacher contracts. This is a high-cost indemnity plan that is no longer even sold in the market.
• Freeze a flat dollar amount for retiree health coverage and seek cost-saving alternatives. Less than 3% of R.I. employers offer retiree healthcare benefits.
• Eliminate carrier-specific language in collective bargaining agreements so that the town can go out to bid annually to all three health insurance carriers in R.I. and, likewise, for dental insurance.
• Implement flexible spending accounts for employees. This is a pre-tax way for employees to offset additional out-of-pocket medical, dental, vision, pharmacy and overthe counter expenses. While there is a small cost to Jamestown for adding this benefit, it is offset by savings on FICA taxes that the town pays.
Recognize that these changes will reduce the proposed 13.2% increase and will help contain costs moving forward so that future healthcare costs will be calculated on lower premiums. The taxpayers are not the only ones who win with lower healthcare costs – the town, schools and its employees stand to gain as well.
Amy Gallagher is on the executive board of the Taxpayer’s Association of Jamestown and is vice president at Cornerstone Group, an employee benefits advisory firm located in West Warwick.