Friday, September 07, 2007

Time to Tackle Health Insurance Costs

It should be no secret to anyone that the rising cost of employee health insurance constitutes the most pressing issue on the expenditure side of Milton’s financial problems.

In fiscal year 1998 the cost of these benefits was $3 million. For the current fiscal year of 2008 it stands at $8.2 million. Most alarming is the rate of increase of the last five years. This growth now produces such prodigious annual incremental increases that it threatens to eat up nearly all the annual growth in revenue, itself not very robust, and leave little left over to maintain our current staffing levels needed to provide the services we are long accustomed to.

A highlight of Governor Patrick’s recent campaign was the “Municipal Partnership Act”. The key component offered a streamlined approach for communities to join the state employees’ health insurance system. This provision was signed into law near the end of July, as Chapter 67 of the Acts of 2007. The law lays out the procedures that must be followed to transition to the state plan.

The financial benefits to joining are substantial. During the past five years municipal insurance costs have increased 84% or 13% per year while the state’s program has increased 47% or 8.1% per year. A joint report by the Boston Municipal Research Bureau and the Massachusetts Taxpayers foundation has conservatively computed the possible savings statewide to be $436 million in FY 2013, and $1.4 billion by FY 2018, just ten years from now. Using the same assumptions for a conservative savings we can see a possible scenario for Milton.

-----------NON GIC 11%------GIC [State] 8.1%--------------Annual Savings

2008------$8.2 million----------$8.2 million

2009------$9.1-----------------$8.9-------------------------$ 200,000

2010------$10.1-----------------$9.6------------------------$ 500,000

2011------$11.2-----------------$10.4-----------------------$ 800,000

2012------$12.4-----------------$11.2-----------------------$1.2 million

2013------$13.8-----------------$12.2-----------------------$1.6 million

2014------$15.3-----------------$13.2-----------------------$2.1 million

2015------$17.0-----------------$14.3-----------------------$2.7 million

2016------$18.9-----------------$15.5-----------------------$3.4 million

2017------$21.0-----------------$16.8-----------------------$4.2 million

2018------$23.3-----------------$18.2-----------------------$5.1 million

Even in the very first year the savings could be hundreds of thousands of dollars, rising to millions of dollars on an annual basis in a matter of a few years. So what does Milton need to do to join the state plan?

Notify all collective bargaining units within the town of its desire to negotiate entry into the state system.

Establish negotiations with a collective bargaining committee comprised of a representative from all unions and a representative of retired employees.

The individual unions would have a weighted vote in the negotiation based on the proportion of employees in the town’s health plan. Retirees would have a 10% vote.

Secure approval of an agreement by vote of 70% of the union committee, with any conditions for acceptance, a dispute resolution process for future agreements, and a process for withdrawal,

Notify the state of this agreement by October 1, 2007 in order to enter the state system by July of 2008 for Fiscal Year 2009.

One of the early criticisms of the law is the short timeframe for first year admittance. From the date of passage to the deadline of October 1 is about 2 months. Even for communities who may have started the process the day after passage this leaves very little time to secure union agreement.

I would be surprised if Milton has even begun the process. But we should. The financial implications are so significant that it is hard to imagine a good reason not to start immediately. There is already discussion about asking the legislature to postpone the notification date. If we go to work now we might be able to meet a later date, and if not, the process will have begun and give us more likelihood we’ll be ready a year from now, even at a cost of $200,000 savings next year.

The other reason Milton and all communities should begin now involves other aspects of the law’s provisions. Many feel getting a 70% vote of union reps is unlikely. If that proves to be the case the legislature has it in its power to change the entire mechanism for entry. The unions need to realize that, as they go through this process, and they need to understand that voter patience with overrides required in part to fund health care benefits superior to what they enjoy in the private sector is quickly coming to an end.

We won’t know if union intransigence requires action unless a number of communities get about the process of negotiation. If that is delayed, needed reforms will be delayed, and Milton will pay the costs of unrealized opportunity along with everybody else.

This should be the number one priority for the Board of Selectmen, who have the authority under law to initiate this process. Nothing else that can be done in the short term will have the financial impact of joining the state insurance plan. The Governor’s home community should be in the vanguard of a process which so ably demonstrates Deval Patrick’s understanding of the problems of local communities and his desire to propose intelligent solutions.