Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
Special Commission on Municipal Relief
State House
Boston, MA 02133
Dear Members of the Special Commission on Municipal Relief,
It is clear that the Commonwealth now faces a new fiscal reality, which means that the work of your commission is extremely important to the cities and towns of Massachusetts. We look forward to reviewing in detail the full report you are issuing, and know that there will be much to support, including local option taxes, reform of the tax loopholes in the area of telecommunications, and many other vital initiatives.
The MMA and local officials have been aggressively advocating for strong, real and meaningful reform in the area of municipal health insurance. Massachusetts can no longer afford to allow the status quo to stand, and cities and towns need real, workable reform. We have been briefed on the plan that is in the Commission report, and must share with you our strong opposition to the proposal as drafted.
Background
Cities and towns in Massachusetts are facing extreme fiscal distress caused by ever-rising health insurance costs. Without substantial reform, health insurance costs will soon represent 15 percent of municipal budgets, up from 9 percent in 2003. In addition, for many municipalities the yearly increase in health insurance is greater than the allowable property tax increase under the terms of Proposition 2½. Obviously, this situation is not sustainable. Tinkering at the edges of the problem will not change the inexorable march of health insurance increases. Fundamental change is desperately needed.
Massachusetts has a two-tiered system for providing health insurance to public employees. State employees receive their health insurance through the Group Insurance Commission (GIC). The GIC is an eleven-member board that is controlled by the Executive Branch. The GIC makes all of the decisions regarding plan design: who the carrier will be, what the co-pays will be for office visits, emergency room visits, in-patient hospital stays, out-patient surgeries, diagnostic tests, and pharmaceuticals. The decisions of the GIC are final and not subject to collective bargaining.
The percentage of the premium to be paid by the employer and the percentage to be paid by the employee is determined each year as part of the Commonwealth’s budget process. Again, the decision is final and is not subject to collective bargaining.
The state has made a conscious decision to use co-pays and tiered networks to drive down the premium costs. This decision has been successful at holding down costs. From 2001 to 2005 state health insurance costs rose 29 percent. Because municipalities lack this fundamental ability to update plan design (the co-pays, deductibles and networks), their costs rose 63 percent.
Municipal government operates under an entirely different system. The most important difference between the state and the cities and towns is that state law mandates that health insurance for municipal employees is subject to collective bargaining for both plan design and the premium split. This system has saddled cities and towns with health insurance plans that are generally more expensive than those offered to state employees because the co-pays are significantly below what the state requires of its employees. Finally, in order to increase co-pays, municipal government must get the approval of all of its bargaining units. Thus, cities and towns are doubly disadvantaged by first being required to collectively bargain any change and then by the requirement that they have to get all of the bargaining units to agree to any change. The result of all of this is the fact that municipal co-pays are very low compared to the state and private sector employers and therefore municipal health insurance premiums are higher.
The Governor’s Plan
Unfortunately, the plan submitted by the Governor in the Municipal Partnership Act II completely misses the boat regarding plan design reform. The Governor completely avoids the collective bargaining issue and instead relies on an average cost per subscriber scheme. First, the Secretary of Administration and Finance would have to determine what the average cost (employer and employee contributions combined) per employee is for GIC plans, then require municipalities to determine their average cost per employee, then determine how close municipalities have to come to the state average, then give the municipality 90 days to get within the prescribed parameters of the state average cost (using the unworkable existing collective bargaining scheme), and if the municipality fails to achieve the cost reduction, the community would see a reduction in local aid to make up the difference.
This punitive framework takes a pass at real reform, and instead offers a plan that is slow and would require extraordinary regulation writing by Administration and Finance. The calculation of the average cost per subscriber scheme is fraught with complexities. For example, using a single benchmark number would penalize communities that pay a lower-than-average percent premium contribution. Some municipalities only contribute 50 percent of the total cost of the health premiums, thereby incurring a lower tax burden on their citizens. Holding these municipalities accountable to a benchmark based on total premium without regard to contribution share would actually penalize them for having negotiated a much lower than average percentage employer contribution for health insurance.
The single benchmarks wouldn’t accurately reflect the regional differences in health costs. A single GIC benchmark number averages the lower costs from western and central Massachusetts with the higher costs from the Boston area. Yet if a city or town from eastern Massachusetts joined the GIC, they would not likely experience the average GIC costs, and achieving the average benchmark is even more problematic.
Another concern with using a single benchmark is its failure to recognize the subsidy that some municipalities have built into their active employee rates to make their retiree costs more affordable. In these instances, the municipality would be penalized for its well-intentioned goal of helping its most vulnerable citizens, and the plan would ultimately drive up costs for retirees, many of whom would have paid a higher premium when they were active employees in order to achieve more affordable health coverage in their retirement.
The mixing of all plans together into one average rate would also disadvantage those communities along the state’s border because their experience within the GIC is likely to be more expensive than the benchmark. The reason is that employees are likely to select the more expensive GIC indemnity plans in greater numbers because of their out-of-state health care utilization rather than the less expensive in-state PPO products.
The average benchmark rate may also contribute to higher cost indemnity usage in the GIC for those municipalities with a higher-than-average percent contribution. For example, municipalities that contribute 90 percent of the health premiums would likely see their employees select the higher-cost GIC indemnity.
All these points underscore the challenges of setting a single benchmark number, and show that the most effective reform is not based on a one-size-fits-all number, but rather on allowing cities and towns to change their plan designs to mirror the state’s plans. This is more effective and flexible, allowing communities to achieve savings but avoid the many problems highlighted above.
In addition to the flaws of using a single benchmark for all cities and towns, this plan does not get at the fundamental collective bargaining problem, and includes the final indignity in that it would increase the leverage and power of municipal employee unions by compelling municipalities to agree to union-demanded concessions because of the threat of losing municipal aid. It is our judgment that the Governor’s plan is not reform, and would only exacerbate health insurance problems, undermine any achieved premium savings, and lead to many, many inequities throughout the state.
The Municipal Relief Commission’s Plan
The Joint House and Senate Municipal Relief Commission is recommending a variation of the Governor’s plan. We recognize the hard work that members have devoted to this matter, yet, unfortunately, the MMA must share its position that the plan does not represent reform, and would actually be a step backward compared to the status quo. Indeed, this plan effectively introduces, in slightly different form, a type of mandatory arbitration that would bind municipalities in ways that have not existed in Massachusetts since binding arbitration was abolished by the voters as a key element of Proposition 2½.
The Commission plan would use the same method for determining the average cost of state and municipal health plans as the Governor (with all the same flaws). The Commission plan would give cities and towns 90 days to get to this deeply problematic benchmark level, and would require that municipalities receive union approval before implementing these changes to bring their costs down. The negotiations that would take place would involve concessions that cities and towns would make to get unions to agree to any plan design changes, such as reimbursing for a portion of the new and higher co-pays and additional out-of-pocket costs (that state employees pay without reimbursement from the state).
Since the state offers no such reimbursement, by definition cities and towns would pay a higher overall cost than the state benchmark! In essence, the unions would demand to know how the community would make the employees whole if they implement the changes needed to reduce health insurance costs to this benchmark level. If the parties could not reach an agreement, the state would mandate that a mediator would be called in to “solve” the dispute. This unaccountable person would render a decision that would be binding on the union and on the municipality unless rejected by a super-majority of the local legislative body. If the plan is rejected by the community, then the city or town would lose local aid similar to the Governor’s plan. This gun-to-the-head financial penalty would effectively make the arbitrator’s decision binding on communities.
This plan would be just as slow and unworkable as the Governor’s plan (in spite of the calendar deadlines in the bill), and while the bargaining involved in the Commission’s plan is more detailed than the Governor’s plan, the introduction of a form of binding arbitration would in essence use an unelected, outside, third party to make basic employee benefit decisions for the community. As noted, binding arbitration was repealed by the voters in 1980 as part of Proposition 2½, and we must strenuously resist its re-imposition. For these reasons, we respectfully but very, very strongly oppose the Commission’s plan. This plan would not reform health insurance in a meaningful way, and would actually move Massachusetts back. We know that there is no way that state government would change state law to make these provisions, especially the bargaining requirements, applicable to the state. For the same reasons that the Legislature would reject this plan for itself, we ask you to refrain from mandating it on localities.
We conclude that neither the Governor’s plan nor the Commission recommendation would achieve real reform and savings. Indeed, we predict that each plan has several unworkable elements that would be extremely disruptive and in some cases unfair, and contradict the very goals that we know you and members of the Legislature have in terms of cost savings, and securing high-quality health insurance for employees all across the state.
The most effective way to achieve real savings while avoiding the many problems listed above rests in a simple solution – allowing cities and towns to update their plan designs to reflect the plans that state employees receive. Overall, simple parity would provide the easiest solution, which would mean removing plan design from collective bargaining.
We recognize, however, that this modest proposal is encountering resistance from those who are fighting to retain union powers in this area.
Because time is so urgent, and the need for reform is so great, the MMA has provided an even more modest compromise alternative that would continue to give municipal unions much more power and authority in this area than state employee unions.
The MMA’s compromise alternative is to use impact bargaining as a way to solve the problem. Under our plan, municipalities could increase co-pays and plan design elements up to the level that the GIC has for similar plans. Plan design changes of this sort would be subject to impact bargaining only. The parties would discuss what impact the changes in co-pays would have on employees. Rather than bargain with the unions separately, a form of coalition bargaining would be used to expedite the matter. The parties would have 60 days to reach an agreement. If, at the end of 60 days, no agreement is reached, then the municipality could implement its decision regarding co-pays with the provision that the municipality would pay at least 50 percent of the co-pays for in-patient hospital stays and out-patient surgeries.
The MMA strongly believes that this would be the fastest way to reduce health insurance premiums. Municipal government would still not have the authority that the state has to simply determine plan design, rather we would bargain with the unions on an impact basis. In addition, unlike the state, we would continue to bargain over the health insurance premium split. In the end, municipal employees would have far more opportunity to help shape their health insurance plans than state employees have.
Giving municipalities the tools to quickly adjust their health insurance plans will result in significant savings for municipal government. For many communities, increasing co-pays to what state employees pay would result in a savings of at least 4 percent of premium. Additional savings from in-patient hospital stays and out-patient surgeries further increase savings. Changes to pharmacy co-pays and the use of tiered networks would add more savings. Statewide, the health insurance savings would be in the millions and millions of dollars. Given the fiscal crisis that we all face, these funds would be used to save thousands of municipal jobs across the Commonwealth. All for the cost of increasing office visit co-pays from $5 to $15, for example.
In summary, the MMA plan is simpler, retains more bargaining rights for municipal unions than state employees have, protects against unanticipated problems cited above, and guarantees greater savings for more municipalities, while ensuring high-quality health insurance for all municipal employees.
We offer real reform to move forward, and share our honest assessment that the Commission and Governor’s plans would actually move us backward. We cannot afford to miss this opportunity.
Thank you very much for your consideration, and for your efforts in the other very important areas of municipal relief.
Sincerely,
Geoffrey C. Beckwith
MMA Executive Director