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Our members are the local governments of Massachusetts and their elected and appointed leadership.
House-Senate Budget Conference Committee
State House, Boston
Dear committee member:
On behalf of the cities and towns of the Commonwealth, the Massachusetts Municipal Association urges you to include a strong municipal health insurance reform provision in the final version of the state’s fiscal 2011 budget. A strong reform provision must guarantee that a significant majority of any savings goes to communities and taxpayers to balance budgets and preserve municipal jobs, and must ensure that communities retain vitally important management authority and fiscal control by omitting any binding arbitration or permanent coalition bargaining requirements.
The MMA sincerely appreciates the desire of Senate leaders to devote attention to this essential issue. The inclusion of a municipal health provision in the Senate version of the budget gives the Conference Committee an opportunity to craft a final measure that can provide long-overdue relief for cities and towns across Massachusetts. While communities appreciate the intent to address this issue, we have deep concerns regarding several provisions that would undercut municipal savings, infringe on municipal decision-making, or make the reform unworkable.
In particular, we highlight the following major issues:
Communities and Taxpayers Must be Guaranteed Adequate Savings
Under the Senate language, communities and taxpayers would retain only twenty-five percent of the savings for the operating budget, employees would receive twenty-five percent of the savings (through health reimbursement accounts, premium reductions, a change in the employee-employer premium split, or lower co-pays), and the community and PEC would negotiate over the remaining fifty percent of the savings. No plan design change or transfer to the GIC could be implemented until an agreement is reached with the PEC.
Any reform measure must guarantee that communities and taxpayers receive a significant majority of any savings. The current language before the Conference Committee creates a totally unbalanced approach that leaves the remaining seventy-five percent either up for grabs or guaranteed to employees. Any savings that comes from plan design changes will be reflected in lower premiums paid by employees, so there is always guaranteed savings for municipal workers. The reality is that the remainder of the savings will be used to balance local budgets, preserve services to taxpayers and prevent layoffs in the municipal workforce. Forcing half or more of the savings to be used for other employee benefits undermines the reform by driving up other costs, leaving less for core services, and increasing the number of employees who would lose their jobs. The state has shared NONE of their plan design savings with state employees, except for premium savings, and has used one hundred percent of the net savings to balance the state budget and prevent further cuts and layoffs. This proposal would invite municipal unions to demand a disproportionate share, and would leave far too little of the savings to offset the massive local aid cuts of the past two years. For state government, the current policy is to retain all of the savings to balance the budget and preserve state jobs. It is unfair to restrict the savings that cities and towns and local taxpayers would achieve.
Section 19 Coalition Bargaining Does Not Work
The Senate language would require cities and towns to adopt Section 19 of Chapter 32B in order to make plan design decisions or enroll in the GIC under this provision. Section 19 establishes a permanent coalition bargaining obligation that requires the approval of a public employee committee (PEC) on all future health insurance matters, including the employer-employee premium share and all agreements regarding what to do with any savings from plan design changes (the PEC has weighted votes based on union membership and 10 percent for retirees, meaning the teachers union would have an effective veto power over all negotiations and agreements in the future). Once adopted, Section 19 could only be revoked with the agreement of the PEC. The decision to adopt this section would be made by the council with the approval of the mayor or city manager in a city, and by the Board of Selectmen in a town.
We strongly oppose forcing communities to accept permanent coalition bargaining over all future aspects of health insurance through Section 19 of Chapter 32B as a condition of plan design authority. Section 19 is a failed model that has not worked because it gives unions, in particular the teachers union because they have such a high percentage of the vote, the ability to block vital health insurance changes and issues in the future, and control this huge area of local budgets. For many communities, this requirement would be far too high a price to pay in the long run. The MMA strongly supports giving full authority outside of collective bargaining to implement plan design changes or enroll in the GIC, but accepting permanent Section 19 coalition bargaining would make all other health insurance issues much more difficult in the future, and give the PEC a veto power that has proven to be far too costly in the original six communities that have accepted the provision. This aspect of the proposal permanently and dramatically strengthens union leverage over health insurance matters, instead of providing essential collective bargaining relief.
Binding Arbitration Drives Up Costs to Taxpayers
Under the proposed language, if the community and PEC cannot reach an agreement after 45 days of their first meeting, then the matter would go to binding arbitration, and the arbitrator’s decision would be binding on the community unless rejected by an extraordinary two-thirds vote of the legislative body. Rejection of the agreement would prohibit the implementation of plan design changes or enrollment in the GIC under this new process.
Cities and towns strongly oppose binding arbitration. This proposal would allow an unelected and unaccountable person to control the health care finances of every community. We’ve seen the result of what binding arbitration would bring in communities across the state, with an unaffordable 19 percent pay raise being ordered for Boston firefighters. This provision would give an arbitrator more power than two-thirds of the elected officials in any community, even more power than the arbitrator in the Boston case. Also, it is important to remember that voters repealed binding arbitration in 1980 as part of Proposition 2½, because arbitration decisions were far too costly, and because voters rejected the idea that an unaccountable person could impose decisions that were unaffordable. Binding arbitration must be rejected.
Other Key Concerns
In addition to the three major issues outlined above, there are several aspects of the legislation that need to be addressed in order to make the framework workable for cities and towns.
First, there is no definition of “cost savings,” which invites confusion or differing interpretations that would stall local discussions. Clearly the savings should be determined by comparing the health insurance premiums without plan design changes to the premium cost with the changes. We will be forwarding recommended language to your staff for consideration.
Second, there is no definition of “actuarial value of a health plan,” which again invites confusion or differing interpretations that would stall local discussions. Clearly the actuarial value should be determined by calculating the percentage of the out-of-pocket costs (co-pays and deductibles) that account for the total cost of the plan. We will be forwarding recommended language to your staff for consideration.
Third, the legislation provides no indication of the length of time over which savings would be shared. As you know, normal health care inflation will drive up costs such that any premium savings would be eliminated after one, two or three years. It would make no sense for a community to agree to a permanent financial obligation when the savings, while significant, would be short-term in nature. This is one of the reasons why the state has a policy of not sharing any of the savings with employees, except for the premium savings. This legislation should establish a reasonable time period for any savings arrangements.
Fourth, the amendment language stipulates that no change could be implemented for any group of employees covered by a collective bargaining agreement on July 1, 2010 until that agreement has expired. Very few contracts include language concerning plan design features, and thus this provision would unnecessarily delay any savings for years. Any such provision should be limited to contracts that set or address plan design features.
Fifth, the plan also creates an extraordinary new “contractual relationship” with “contractual rights and benefits” for municipal employees enrolled in the GIC. This is flawed language that would require any community in the GIC to hold their employees harmless from the cost of any mid-year plan design changes. Thus, if the GIC makes any future mid-year changes, as occurred this year, cities and towns would be hit with extraordinary mid-year costs to make up the difference for all employees. Unions may very well argue that this language would actually prohibit the state from making any mid-year changes at all. In either case, this would be a major intrusion on the state’s management authority, and would place an enormous burden on cities and towns.
Summary
Cities and towns are being crushed under the burden of skyrocketing health insurance costs. Coupled with last year’s $724 million local aid cut, and an additional cut of $150 million in the fiscal 2011 budget, municipalities across the state are in fiscal crisis. This is the year to provide real reform and savings to cities and towns by giving local government the same plan design authority the state has to set health insurance plans. Plan design reform would save communities $100 million statewide, preserve thousands of key municipal and school jobs, and prevent even deeper cuts in critical local services.
We respectfully ask you to incorporate a strong reform measure into your fiscal 2011 budget plan using the following framework:
• Support giving cities and towns the same authority the state has to make basic plan design decisions outside of collective bargaining – we support limiting this authority so that no community could use this provision to enact co-pays and deductibles that are higher than state employees’ out-of-pocket costs;
• Support reform to guarantee that cities and towns would have access to the savings so that they can protect against layoffs and service cuts – when cities and towns reduce their insurance costs, employees see a real savings because they save on their premium share, and, of course, cities and towns use the savings to prevent layoffs, protect services and balance their budgets;
• Oppose any attempt to make plan design changes or negotiations over savings subject to binding arbitration – this would allow an unelected and unaccountable person to control the health care finances of every community. We’ve seen the result of what binding arbitration would bring in communities across the state, with an unaffordable 19 percent pay raise being ordered for some Boston employees in the midst of the worst recession and fiscal crisis since the 1930s; and
• Oppose forcing communities to accept permanent coalition bargaining over all aspects of health insurance through Section 19 of Chapter 32B as a condition of plan design reform – Section 19 is a failed model that has not worked because it gives one union the ability to block any and all health insurance changes in the future. Communities are seeking a targeted reform on plan design only, and Section 19 would clearly be a major step backward.
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 as much as 15 percent of local budgets, squeezing out vital services and costing local taxpayers more and more every year. The Commonwealth of Massachusetts, the federal government and private employers have been able to moderate the cost of employee health benefits by implementing increases in co-pays and deductibles. But communities have been blocked by the Chapter 32B bargaining mandate, and are trapped in outdated plans that are too costly.
Communities are facing a true fiscal crisis. This is the time for real reform and real action. This is the year to pass plan design reform. We look forward to working with you and your colleagues on this vital priority.
Thank you very much.
Sincerely,
Geoffrey C. Beckwith
MMA Executive Director