Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
Joint Committee on Public Service
State House, Boston
Dear Representative Scibak, Senator Clark and Members of the Committee,
On behalf of the cities, towns and local taxpayers of Massachusetts, the MMA strongly urges you to support H. 2964, legislation to provide communities with the tools to manage and control skyrocketing municipal health insurance costs. This is the single largest budget buster that communities face. The MMA has been supporting and calling for reform for seven years, and, unfortunately, the problem has become worse with each passing year. The time for action has come.
We urgently call on you to support reform legislation to give municipalities greater control over their health insurance costs. This vital reform would simply give local officials the same power the state has to shape employee health plans and save taxpayers up to $100 million a year. This call for plan design reform has been embraced by municipal leaders from across the Commonwealth and by leading organizations, including the Massachusetts Taxpayers Foundation, Associated Industries of Massachusetts, the Boston Foundation, the Greater Boston and local chambers of commerce, and many others.
In February 2010, the Boston Globe provided a rich outline of the crisis in municipal health costs, and days later The Boston Foundation released an 80-page report, “The Utility of Trouble – Leveling the Playing Field: Giving Municipal Officials the Tools to Moderate Health Insurance Costs.” The Boston Foundation’s conclusion is that we must “level the playing field between state and local health benefits management by removing the requirement that municipal officials must collectively bargain plan design changes.” This past December, the Massachusetts Business Alliance for Education released a report that showed that all of the $700 million in new Chapter 70 school aid from 2000 to 2007 was consumed by health insurance costs.
Total municipal aid is $416 million lower than what it was three years ago, and the governor’s budget proposes a further $65 million reduction. Communities are in fiscal crisis, and health insurance reform offers meaningful relief that taxpayers deserve. There can be no excuse for keeping the unique and special veto power that municipal unions hold over health plan changes – this veto power is costing taxpayers millions of dollars a year, forcing cuts in essential municipal and school services that are crowded out by soaring health costs, and forcing the elimination of teachers, firefighters, police officers and other key employees. Without real reform, taxpayers will continue to pay millions more than they should, which will force even more service cuts and layoffs.
Local Taxpayers Are Forced to Pay Millions More for Employee Health Benefits
While health insurance costs are a problem for everyone, municipalities have been forced to pay much more than necessary because of Chapter 32B, the state law that gives municipal unions a veto over common-sense changes that would reduce the cost to taxpayers. Over the past 10 years, cities and towns have seen their health insurance costs rise by over 150 percent. Health insurance is the biggest budget buster at the local level, accounting for 15 percent or more of local budgets, squeezing out vital services and costing local taxpayers more and more every year.
The state has been able to moderate the cost of employee health benefits by implementing increases in co-pays and deductibles, just as the federal government and private employers have done. But communities have been blocked by the Chapter 32B bargaining mandate and are trapped in outdated plans that are too costly.
Original HMO Plan Designs and Contribution Percentages Were NOT Set in Collective Bargaining
As part of their effort to block needed reform of municipal health insurance, many of the state’s public sector unions have been trying to rewrite history and claim that current municipal health plan benefits, such as $5 co-pays and 90 percent HMO premium payments, were shaped or won at the bargaining table. This is not accurate, and the municipal unions’ health care overstatements need to be corrected. The fact is that those municipal health benefits were NOT set through collective bargaining.
Today, the overwhelming majority of municipal employees are covered by HMOs. This was not always the case. In the early 1970s, when HMOs were emerging in other parts of the country, primarily on the West Coast, municipal employees in Massachusetts were enrolled only in indemnity plans.
HMOs broke into the market here in the mid-1970s, and substantially increased market share in the 1980s. The $5 dollar office visit co-pays and other features were set by the insurers, and were not bargained by municipal unions. Similarly, the plan design features of indemnity plans were not negotiated.
In the 2000s, the Commonwealth, the federal government and private employers increased co-pays and introduced deductibles in order to reduce the cost of health plans. This happened without any collective bargaining. With cities and towns chained to Chapter 32B, however, Massachusetts municipalities have been forced to seek union approval to change co-pays and deductibles that were not negotiated in the first place. Any plan design changes that have been instituted at the local level have come at a great cost, in the form of higher pay increases or benefit enrichments that the state, federal and private employers did not have to offer or award. This unfair system has placed a huge burden on local taxpayers and blocked reasonable efforts to right-size plan design features to match what all non-municipal employees receive.
When union representatives claim that they negotiated and gave concessions to set $5 co-pays or other basic HMO plan design features, this is not the case. When they claim that they negotiated a $10 or $15 co-pay, the truth is that it is the city or town that had to make taxpayer concessions to increase co-pays from their original low starting place. There were no union concessions. Cities and towns have been forced to spend taxpayer dollars to change benefits that were not negotiated or won at the bargaining table in the first place.
When it comes to the premium contribution levels, the situation for the past quarter century is quite similar. Back in the 1960s and 1970s, municipalities offered only indemnity plans. A minority of communities engaged in some negotiations concerning the premium contribution (not the plan design), back when the cost of health insurance was much lower, which is how some indemnity plans moved from a 50-50 employer-employee split to 75-25 or some other ratio.
The truth about HMO premium contributions is even more dramatic and is the opposite of what we hear from public sector union representatives.
In the 1970s, when HMOs lobbied the Legislature to allow municipalities to offer HMO coverage, the premium cost for HMOs was actually higher than the indemnity plans. Fearful that municipalities would be burdened by higher costs, the state responded by including a “same dollar” provision in the law authorizing HMO coverage. The law stated that governmental units would pay the same dollar amount toward the premium expense for HMO coverage as they were contributing toward the premium cost of indemnity plans.
Thus, if a municipality was paying 75 percent of the indemnity plan (with employees paying 25 percent), and employees enrolled in a more expensive HMO, the municipal contribution would be capped at the same dollar cost of what the indemnity plan would be, instead of paying 75 percent of the higher-cost HMO. That was a well-intentioned plan, but it backfired.
As HMOs expanded, younger and healthier employees found HMO coverage more attractive than the indemnity plans, especially provisions such as covering the cost of annual physicals. This created a trend known as “adverse selection.” Younger, healthier employees went to HMOs, and older, less healthy workers stayed in indemnity plans. The HMOs became much less expensive than indemnity plans as a result.
But the same dollar requirement stayed in place. With the state’s requirement locked in, cities and towns found that the amount they were contributing to the indemnity plan translated into a much more generous share of the cost of the HMO plan, frequently exceeding 100 percent of the HMO cost. It was state law, not labor negotiations or collective bargaining, that led to free HMOs for many employees.
The same dollar requirement had a devastating impact on municipal budgets and exacerbated adverse selection among plans. Finally, after years of lobbying, cities and towns won passage of a 1989 provision that set a minimum employee contribution of 10 percent for HMOs and froze in place the existing premium split for those communities paying less than a 90 percent share of the premium.
But it was too late. Because of the state’s mistake in 1974, municipalities have been burdened by extremely high HMO contribution ratios that were not negotiated in the first place. Since that time, communities have attempted to reduce their HMO contribution percentages, but municipalities have had to pay for these changes at the bargaining table, essentially “buying back” benefits that the state erroneously handed to the unions, at taxpayer expense.
So here’s the bottom line: Collective bargaining did not set the plan features and generous contribution percentages that are breaking municipal budgets. Unions did not win these aspects at the bargaining table. Now, when taxpayers desperately seek relief and basic fairness, we are asking state leaders to embrace reform based on the reality, not on the unions’ misinformed rhetoric.
When municipal leaders ask for plan design authority, the purpose is to preserve services and protect local taxpayers. This reform would not undo anything that was won by labor at the bargaining table. That’s the myth. The reality is that taxpayers should not have to pay more to buy back benefits that were not bargained in the first place. This is why cities and towns respectfully ask for plan design authority outside of collective bargaining and strongly resist efforts to require sharing of any “savings” (the reality is that plan design changes will avoid cost increases, not generate cash that can be available for distribution or enriching other benefits).
Local Government Needs the Same Authority the State Uses to Design Health Insurance Plans
Cities and towns are locked into overly expensive health plans because they cannot gain the required union approval to implement cost-savings, while the state has exempted itself from this mandate and routinely implements basic decisions on health insurance outside of collective bargaining, such as increasing co-pays and deductibles to lower the cost of their plans. The state must end this double standard by giving cities and towns the same authority to design health insurance plans outside of collective bargaining. We estimate that most cities and towns would be able to lower their health insurance costs by 4 percent to 6 percent, or as much as $100 million statewide. This is fiscal relief that taxpayers deserve, and employees would share in this savings because the premiums they pay would be lower.
Of course municipal unions oppose this reform. That’s not a surprise, but as the Boston Foundation points out, “The growing cost of health care is a job-killer. 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 point is powerful: Communities will use the savings to protect services and preserve municipal jobs.
Some state officials have tried to defend the status quo by claiming that labor “has a seat at the table” on the state Group Insurance Commission, but the fact is the 15-member GIC has four labor seats, and the governor appoints the remaining 11 commissioners who make all the decisions. Every city and town already has an Insurance Advisory Committee made up of labor union representatives, and communities are required to consult with their IAC on all health insurance matters before taking action. This is at least as real as what the state claims is their inclusive process. There is no comparison with the state’s mandate that cities and towns must go through collective bargaining and receive union approval before making co-pay and deductible changes in health plans, and the state’s power to impose changes at will. This double standard costs local taxpayers millions each year!
Municipal Union “Framework” Falls Short – No Reform and Little Taxpayer Relief
On Monday, several municipal unions released a repackaged framework that includes no new proposals and little in the way of reform or taxpayer relief. Their framework would retain full collective bargaining over plan design changes through coalition bargaining, require at least 50 percent of any savings or avoided costs to be redirected to increase health or other employee benefits, impose binding arbitration that would allow an outside unaccountable arbitrator to impose costs and health plans on cities and towns – even though the voters repealed binding arbitration as unaffordable in 1980 – and then sunset the entire framework after three years and place all future health insurance matters in full collective bargaining. Because health care costs are rising every year, most of the taxpayer relief will come in the form of avoided cost increases and will not generate revenue or money that can be used to pay for additional benefit enhancements. That’s why the state has never bargained over or offered additional benefits or wages as part of any GIC plan design changes. The bottom line is that the framework is not a compromise, and it does not offer the necessary reform. It would actually expand union leverage in health insurance bargaining, would not provide local taxpayers with the relief they need, and would force communities to cut services or lay off employees to fund the added benefits and costs.
Cities and Towns Need H. 2964
H. 2964, sponsored by Rep. Stephen Kulik, would eliminate the double standard in state law and give cities and towns the same power the state has to implement necessary cost savings changes in municipal health insurance plans. This is a very focused and moderate proposal, offered in a spirit of compromise to find meaningful middle ground while achieving meaningful reform. Under the bill, municipalities would still negotiate any changes in the employee-employer premium share, giving municipal unions more bargaining authority than state unions. Municipalities would be able to modernize the health plan design outside of collective bargaining, with a guarantee that all municipal and school employees would still have health plans that are the same or better than what state employees receive, meaning no municipal plan would have higher co-pays or deductibles than the state. Any higher co-pays or deductibles would have to be approved in collective bargaining. The bill simply gives plan design parity to cities and towns.
In short, the legislation saves taxpayers money, protects municipal union jobs, guarantees equity with state employee health benefits, and still leaves municipal unions with more bargaining power than state unions. This is a balanced, meaningful, fair and transparent reform.
The governor, recognizing that the status quo is unacceptable and unaffordable, has also filed legislation. While municipal officials applaud the administration for recognizing that the current system is too costly, there are few specifics in the plan and the details would be determined by regulation. The bill proposes a complex and unproven framework that would annually micro-manage each community’s health costs, but would provide no relief from collective bargaining and includes a provision that a portion of averted costs would go to employees, and not taxpayers. Employees would already see savings in their premiums, and requiring additional payments would reduce taxpayer savings and could force more layoffs locally. For these reasons, the legislation would not solve the main problems that have created this crisis.
Communities are experiencing extreme fiscal distress. This is the time for real reform and real action. This is the time to pass plan design reform – the most flexible, transparent, and effective way to immediately achieve meaningful and lasting reform and savings. Further delay will only serve to hurt taxpayers, municipal employees and the public. We ask you to support this straightforward and necessary measure.
Thank you very much.
Sincerely,
Geoffrey C. Beckwith
Executive Director, MMA