Contributions Needed To Cut Costs
Deputy Mayor for Operations Cas Holloway outlined a path to resolve all outstanding city labor contracts and rein in exploding health care costs in an address to the Citizens Budget Commission.
The city has budgeted reserves to settle all contracts and provide reasonable salary increases for employees if union leadership agrees to restructure health care benefits to improve care and reduce costs, and no retroactive pay increases. In any scenario, the Mayor’s office indicated, granting retroactive contractual salary increases for the period covering the recession would open multibillion dollar budget gaps and force a reduction of city services.
Under the provisions outlined last Wednesday, Apr. 17, the city is willing to enter into negotiations for reasonable salary increases for city workers, provided that organized labor agrees to restructure health care benefits in a way that requires contributions from employees and retirees, and rewards employees for living healthy and assisting the city to reduce overall health care costs through disease management, data analysis and other best practices.
Currently, 95 percent of all city workers do not make any contribution toward their health care insurance premium. Without these reforms, health care costs for city workers and retirees are expected to increase by 32 percent from $6.3 billion this year to $8.3 billion in 2018.
“New York City recovered more quickly from the national recession than any other city-and we did it without eliminating essential services or laying off of the city employees who provide them-from police officers on the beat to the teachers in our classrooms,” said Holloway. “At the same time we continued to attract families and businesses to New York city to live and work. But the twin challenges of labor contracts and health care benefits must be addressed for our economic future to be secure. The city is prepared to agree to a new contract with any union that agrees to no retroactive, recessionera pay increases-which we cannot afford- and to meaningful health care benefit reform that improves the quality of care and reduces costs.”
The cost of retroactive raises for the recession period would open a multi-billion dollar budget gap and require the city to eliminate essential services. If the city provided increases that matched the consumer price index from the expiration of their contracts, the total cost for recession era raises for all municipal union employees would be a staggering $8 billion in fiscal year 2014 (FY14) and create an immediate budget deficit in that year of an equal amount, $8 billion.
The new labor contracts also must address the rising cost of health care benefits. In the next fiscal year, 55 percent of the $70.1 billion budget will go toward wages, salaries, health benefits and pensions of the city’s workforce. While the wages and benefits have remained relatively flat, health care and pension obligations have nearly doubled from $6.4 billion in 2002 to $15.3 billion in 2013.
The projected cost of health care benefits for a city employee and their dependents is approximately $15,200 for Fiscal Year 2013-33 percent higher than the national average of $11,400.
The city has taken the first step by seeking to reform existing health care contracts and stimulate real competition for the city’s multi-billion dollar business. In a letter to the Municipal Labor Committee, Holloway outlined the city’s plan for a request for proposals (RFP) to replace outdated contracts.
The RFP will invite competition and better ensure that city workers get the best care. Through a new modern health care plan that incorporates wellness incentives, active disease management and other measures, the city could save as much as $400 million annually on health care costs and provide employees with a higher standard of care.
In recent years, the best health insurers have adopted a data-driven, proactive management approach, including:
– collecting and providing detailed claim and health-plan usage data for employers in a user-friendly format that can be used to better manage the overall plan;
– establishing innovative quality management approaches, such as tiered or high-performance networks; disease management and wellness programs; patient-centered medical homes; and accountable care organizations;
– entering into results-based contracts that guarantee key customerservice and financial metrics; and
– partnering with employers and employees to improve the quality of care and reduce costs in a collaborative, transparent way.
New contracts would also require a reasonable co-premium. Ninetyfive percent of city workers do not pay a share of their annual health insurance premium. But 98 percent of public and private sector employers require a premium contribution for family health coverage, and 93 percent require a contribution for single coverage.
Those contributions, the Mayor’s office noted, are substantial: an average 21 percent and 26 percent for single and family coverage respectively in the private sector, and 10 percent and 18 percent in the public sector.
