Debunking municipal health plan myths

From The Beacon, March 2011, Vol. XXXVII, #3

As part of their desperate effort to block needed reform of municipal health insurance, many of the state’s public sector unions have been trying to re-write 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 false. Unfortunately, too many state officials have heard union representatives repeat this fiction so often that they believe it. The truth must guide public policy, which is why the municipal unions’ health care myth needs to be corrected. Now.

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, Massachusetts municipal employees 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 office visit co-pays and other features were set by the insurers, and were never bargained by municipal unions. Similarly, the plan features of indemnity plans were never 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. However, with cities and towns chained to Chapter 32B, Massachusetts municipalities have been forced to seek union approval to change co-pays and deductibles that were never 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 patently false. When they claim that they negotiated a $10 or $15 co-pay, the truth is that it was the city or town that had to make taxpayer concessions. There were no union concessions. Cities and towns have been forced to spend taxpayer dollars to change benefits that were never negotiated or won at the bargaining table.

All state leaders must understand that the story about how plan design features were won in collective bargaining is not true. It is fiction.

And 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.

But in the 1980s this stopped. For over two decades, there has been virtually no negotiation to increase the municipal share of indemnity plans. And of course, very few employees remain in indemnity plans, with HMOs now dominating enrollment.

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 HMO coverage expanded, younger and healthier employees found HMO coverage more attractive than the indemnity plans, especially liking 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, sicker employees 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, that led to free HMOs for 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 never negotiated.

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 this largesse at the bargaining table. The unions’ health care myths are untrue and must not be perpetuated.

Now, when taxpayers desperately seek relief and basic fairness, we need the Legislature and governor to embrace reform based on reality, not 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 never bargained in the first place.