Who is a member?
Our members are the local governments of Massachusetts and their elected and appointed leadership.
House and Senate Committees on Ways & Means
State House, Boston
Dear Chairman Dempsey, Chairman Brewer, Vice Chairman Kulik, Vice Chairman Baddour, Representative deMacedo, and Senator Knapik,
Skyrocketing health insurance costs have been crushing local budgets and forcing cuts in essential municipal and school services. Fortunately, relief is on the way, but only if the budget conference committee incorporates a strong and meaningful municipal health insurance reform measure into its fiscal 2012 budget report. On behalf of cities, towns and taxpayers across Massachusetts, we are writing to ask you to enact the strongest possible reform and to provide a clear path to savings for communities and taxpayers.
Cities and towns are in fiscal crisis, and municipal health insurance reform offers the vital relief that taxpayers deserve. Health insurance costs are forcing cuts in essential municipal and school services and forcing the elimination of teachers, firefighters, police officers and other key employees from local budgets. Communities will use the reform plan that becomes law this year to provide relief for local taxpayers, protect essential services, and preserve thousands of municipal jobs. We thank you, and all House and Senate leaders and members, for including a plan to address municipal health insurance in each branch’s budget plan, making this reform opportunity possible.
Importantly, municipal health insurance reform guarantees that all municipal retirees, employees and those most reliant on the health care system will have co-pays and deductibles that are the same as or lower than what state retirees and employees pay. Further, the legislation will allow cities and towns to establish HRAs, which do not even exist for state employees and retirees. In addition, municipal unions will continue to have much greater bargaining rights over health insurance than state employee unions have. We ask that you recognize all of this and oppose placing any additional mandates or other costly provisions on local taxpayers that are not in place at the state level.
The House and Senate plans each provide strong protections for municipal labor unions, retirees and those most reliant on the health care system. However, there are significant differences between the two plans, and the resolution of these differences will shape how helpful and workable the final reform framework will be for the taxpayers and municipalities of the Commonwealth.
Overview of House Plan
Overall, the House reform framework is stronger. The process is streamlined and clear: In cities, city councils vote once to accept the statute, and in towns, boards of selectmen also vote once to accept the new law. After that, the appropriate municipal authority (generally the executive) can make health insurance plan design changes or transfer communities into the GIC following a structured process. The executive develops the proposed plan changes (no plan could have higher co-pays, deductibles, tiered network co-payments or other plan features that exceed the most-subscribed plan in the GIC), estimates the first-year savings, and informs the insurance advisory board of the savings. The executive convenes a meeting of a new “public employee committee,” which is composed of a representative of every union (bargaining unit) and a retiree representative. Each participant has one vote. The executive and the PEC spend 30 days negotiating over the proposed changes and the executive’s plan on how to share 10 percent of the first-year savings with employees, especially with retirees and those most impacted by the changes.
If there is an agreement, the community implements the plan as agreed. If there is no agreement, the executive can implement the changes, but has to put 20 percent of the first-year savings into a health reimbursement account for employees and retirees. The changes could be implemented immediately, except in communities that have collective bargaining agreements in place that set specific co-pays and deductibles that are different from the new plan. In that case, communities would wait until the initial term of the CBA has expired to implement the changes for those employees.
Overview of the Senate Plan
Local officials appreciate the reform goals advanced by the Senate Ways and Means Committee. However, the last-minute changes to the plan included several provisions that raise serious concerns: The final Senate language includes a cost-prohibitive provision that would severely impede and interfere with reform in many communities; the bill potentially limits the cost-saving changes that communities could implement; the language imposes a burdensome oversight process; and overall, the plan gives greater power to unions to control the process.
The most significant difference is a new provision added at the last minute that would require all communities accepting the new law to change, if necessary, the percentage of premiums that retirees contribute to match the average contribution of active employees. While this has been benignly described as a “protection” for retirees by some advocates, in reality this provision is a reform-killer for dozens and dozens of cities and towns across the state, costing hundreds of thousands (or millions) of dollars for any community that would be required to decrease retiree contributions and increase the municipal share of the premium, killing the reform in those localities. This provision is described in detail below.
Under the Senate plan, cities and towns (by vote of the council or board of selectmen) must vote to approve the use of the new law each time any plan design change or move to the GIC is contemplated. This is overly burdensome, and in an unprecedented way would mandate a specific vote each time any plan design change, no matter how small, is considered. One would think unions would oppose this provision, as this requirement would be an incentive for communities to seek the maximum plan change at the beginning of the process, rather than taking a more measured and phased approach that some localities may be inclined to pursue.
Next, the appropriate municipal authority can propose a plan design change, or a move to the GIC, to a public employee committee, which is either the existing PEC for those few communities that have adopted Section 19 coalition bargaining, or a new PEC established following the same Section 19 composition, which will meet only for the purpose of this new law. On the PEC, each union has a vote in proportion to its membership, and the retirees have a 10 percent vote. A majority vote is required. This means the teachers’ union can usually block any agreement.
The community can only propose increases in existing co-pays and deductibles up to the median level of the GIC’s insured plans, a much more restrictive authority than the House sets, which could make it difficult or impossible to implement such things as tiered network plans if they do not already exist locally. It is unclear why the median is chosen as a benchmark, as this is less definitive than the House benchmark and by definition could force cities and towns to have lower co-pays and deductibles than the plans that cover most state employees. Further, a community could only propose a move to the GIC if the community would achieve savings that is 10 percent greater than the maximum savings through plan design changes with existing plans (the MMA opposes this higher hurdle and supports allowing cities and towns to enter the GIC regardless of the level of savings). The PEC and the executive have 30 days to negotiate “all aspects” of the proposal, which could include the plan design changes or move to the GIC and a plan to mitigate the impact on retirees, low-income employees, and heavy users of the health care system.
If there is no agreement after 30 days, the matter would be referred to a “municipal health insurance review panel” composed of a municipal and labor representative and an “impartial” third member chosen from a list provided by A&F. If there is no agreement after three business days, the A&F secretary would choose the third member. The panel has 10 days to complete all action on the issue. If the review panel certifies that the plan design changes would not exceed the benchmark, the community could immediately implement the changes. The review panel would also certify the expected savings (unions could attempt to derail the process by challenging the savings projections) and determine whether the municipality’s mitigation plan is “sufficient.” The panel could impose a new mitigation plan (even considering one directly proposed to the panel by the PEC, leapfrogging negotiations), as long as the cost does not exceed 33 percent of the savings, although the language is particularly broad and does not specifically limit this to a total cost of 33 percent of one year’s savings.
The plan design changes could be implemented immediately, except in communities that have collective bargaining agreements in place that set specific co-pays and deductibles that are different from the new plan, or if a community has an agreement in place under Section 19. In those cases, communities must wait until the initial term of the CBA or Section 19 agreement has expired. This language appears to delay any community from implementing any plan design change if even just one contract has specific co-pays or deductibles listed, or has adopted Section 19. This is overly broad and would be a severe impediment to immediate savings and reform, even in those communities where the plan changes would not be inconsistent with nearly all contracts.
The Senate plan also mandates flexible spending accounts, allows HRAs for communities entering the GIC (the GIC has opposed this in the past), gives PECs access to all claims data (raising serious confidentiality and HIPAA concerns), has A&F writing regulations regarding the process (which could open the door for further restrictions or requirements beyond the scope of the legislation), and directs the GIC to develop a “rolling admissions” process for fiscal 2012 that could allow cities and towns to enroll prior to the end of the fiscal year (otherwise localities would be forced to wait until fiscal 2013).
Key Concerns
Eliminate the Senate Retiree Contribution Mandate – This is a Reform-Killer for Many Communities
Added as part of its technical amendment, the Senate would require as a condition for making plan design changes or joining the GIC through the proposed local-option process that the percentage of premium costs contributed by retirees, surviving spouses and their dependents shall be no more than the average percentage contributed by other subscribers to the most expensive and least expensive non-Medicare plans offered by the municipality.
In many communities, this would wipe out the savings from any plan design reform, provide an unaffordable windfall for retirees, and increase OPEB liabilities. For example, if a community has an average 85-15 contribution ratio for active employees and a 70-30 contribution ratio for retirees, the community would need to shift to an 85-15 ratio for retirees in order to implement plan design changes under the new law. This would cut retiree contributions in half, and have communities make up the difference. The MMA is surveying localities to determine the impact, and the results are clear. Our preliminary estimate is that at the very least one-third of the communities in the state would be severely impacted, negating the reform bill. This provision must be deleted from the final bill, otherwise reform will be blocked for dozens and dozens of communities.
The Scope of Plan Design Authority
The Senate plan severely limits municipal authority to increasing existing co-pays and deductibles and could prevent the implementation of lower-cost tiered network plans, even though these plans are commonplace in the GIC. The benchmark in the House plan is easier to quantify and understand, and it offers true parity for cities and towns. Further, there should be no higher savings threshold for enrolling in the GIC.
The Review Board is Unnecessary, and Has Significant Power to Impose Changes and Costs on Communities
The House has no review board, which is vastly preferable. The Senate proposal would grant this new panel the power to oversee municipal actions and, depending on the third member, could impose costs and requirements on communities that would be expensive and highly problematic. The language could allow the panel to change premium contributions (at least temporarily), impose mitigation plans that have costs in future years, or make plan design changes that could reduce the overall savings that communities could achieve otherwise.
Further, we ask that you also strike any provision that grants regulatory authority to A&F or any state agency: the law should simply spell out the procedure, and not subject communities to the uncertainty of regulations and micromanagement under future Administrations.
Implementation
Please adopt the House language regarding the timing of implementation (the second sentence of Section 91). Under the Senate language, all plan design changes would be delayed in communities that have collective bargaining agreements in place that set specific co-pays and deductibles that are different from the new plan, or if a community has an agreement in place under Section 19. In those cases, communities would be forced to wait until the initial term of any CBA or Section 19 agreement has expired. This language appears to delay any community from implementing any and all plan design changes if the community has adopted Section 19, or for those who have not adopted Section 19, even if only one contract has specific co-pays or deductibles listed. This is overly broad and would be a severe impediment to immediate savings and reform. The House language is clear and allows cities and towns to proceed appropriately.
Summary
This is the time to pass a real reform plan to save taxpayers $100 million in avoided health insurance costs. There is strong balance in the proposals advanced by cities and towns – the savings will be directed toward preserving municipal union jobs and essential services; municipal employee insurance plans will be at least as good or better than state employee health benefits; and municipal unions will continue to enjoy more bargaining power than state unions have.
Any money that communities save through plan design will be used to preserve services and prevent more layoffs. Job protection is the ultimate benefit of plan design reform. Please enact a balanced, meaningful, and fair reform that will make a major difference for every community across the state. The communities and taxpayers you represent are counting on strong and real reform this year.
Thank you very much.
Sincerely,
Geoffrey C. Beckwith
Executive Director, MMA