The Research Bureau’s 2005 report Condition Serious, Prognosis Uncertain: The Impact of Municipal Employee Health Insurance on Massachusetts Cities recommended that the City of Worcester negotiate an increase in the employee contribution to health insurance premiums with its unions. Eighteen months after the report was released, the City had successfully negotiated a new rate structure with the vast majority of its municipal employee unions. As described below, these changes have resulted in significant savings to the City and its taxpayers, and as such, we think this work is worthy of recognition for the GRA’s Outstanding Policy Achievement award.

Since FY91, The Research Bureau has regularly monitored and issued warnings about the impact of rising municipal employee and retiree health insurance costs on the City’s budget. In February 2005, The Research Bureau issued its most comprehensive report on the matter, Condition Serious, Prognosis Uncertain: The Impact of Municipal Employee Health Insurance on Massachusetts Cities. (See Attachment A.) The report showed that in FY05, 15%, or $65 million of the City’s budget was allocated for municipal employee health insurance – more than any other expenditure except that for the Worcester Public Schools. The report also examined national trends and health benefits data from 28 Massachusetts municipalities, and found that Worcester’s health insurance benefit structure was more generous and therefore more costly to the City when compared with national averages, neighboring communities, and other cities in Massachusetts. In particular, Worcester was paying the highest percentage of premiums allowed by state law for HMO plans contributing 90% of the premium for individual and family plans-- and Worcester was one of only three cities in the survey paying more than 80% toward Point of Service (POS) plan premiums (the City paid 87% for individual and family POS premiums). We also found that co-payments and other elements of plan design were much more generous as well.

Due to limitations on local property tax increases and declining state revenues, the City’s health insurance expenditures were outpacing its new revenue growth. Because any new revenues were consumed by rising health insurance costs, city employees and the services they provided were being sacrificed to pay for health insurance premiums. Therefore, The Research Bureau recommended that the City negotiate a change in its contribution rate to 75% of the lowest cost health plan premiums. By doing so, the City could achieve savings of over $15 million, which could be used to hire 250 additional employees, or return an average of $260 in property taxes to homeowners and an average of $1,300 to the commercial/industrial property owner. The report concluded by highlighting the following:

• Many residents were facing increasing tax bills and a decline in services to pay for a level of health benefit provided to City employees that they themselves did not receive.
• Increasing the employee contribution would still result in a fair benefit to Worcester’s employees based on what other municipal and private-sector employers were offering their employees.

Worcester City Manager Michael O’Brien cited The Research Bureau’s February 2005 report in his FY06 budget message, and called for a change in employee contribution rates when he stated the following:

To maintain structural balance in the form of wages and benefits for the long-term future of the city – wage increases must be conditional upon changes in health care reforms. In February 2005 the Worcester Regional Research Bureau authored a report titled “Condition Serious, Prognosis Uncertain: The Impact of Municipal Employee Health Insurance on Massachusetts Cities”. This report analyzed and detailed that City of Worcester taxpayers provide its employees with a silent pay raise that is unnoticed at the bargaining table. The Research Bureau concludes  Worcester tax payers are paying an additional “$1,200 per employee each year, for a combined $6.6 million more than the average city they surveyed.”

 We must recognize that our taxpayers can no longer afford and bear most of the burden of these skyrocketing costs of employee healthcare coverage. The long-term fiscal stability of the city is in the best interest of our employees, retirees, neighborhoods, business owners, and taxpayers. The time has come for health care coverage to be front and center at the collective bargaining table addressing health care plan design, contribution rates and wages concurrently. The implementation of these reforms allow for the restoration of city services eliminated from the budget during this recent period of difficult economic times and spiraling health care expenses.  (p.21, Fiscal 2006 Annual Budget Message, included as Attachment B)

The City’s Budget Director also cited the report in a talk to a statewide conference of health insurers. The Massachusetts Department of Revenue asked The Research Bureau to prepare an article on our findings for City and Town, a monthly on-line newsletter that is emailed to public officials in all 351 communities in the Commonwealth (see Attachment C). As a result of that article, the Massachusetts Municipal Association used our study as a basis for a more extensive survey of Massachusetts communities. The results, published in July 2005 by the Massachusetts Taxpayers Foundation, echoed the Research Bureau’s findings. 

Beginning with the Police Officers Union (the International Brotherhood of Police Officers, Local 378) in the spring of 2005, the City negotiated a historic model contract, which included reforms to employee health insurance plan design and the contribution rate structure. Union leaders agreed to increase the employee health insurance contributions to 20 percent for current employees and 25 percent for new hires. From that point forward, the City Manager maintained his resolve to draw the line on benefits increases, and in successive bargaining sessions with unions representing firefighters, teachers, and other municipal employees, he was successful in achieving results that yielded more than $10 million in savings in the City’s FY07 budget.  (Note: It was not until July 2006 that the City and the Worcester Clerks Association agreed to a contract with a revised health-benefit formula, and in August 2006, following three years of negotiations, Local 495 of the National Association of Government Employees, the City’s second largest labor union, approved the model contract and its provisions for increasing employees health insurance contributions.)

In the Fiscal 2007 Budget Message, presented to the Worcester City Council on May 23, 2006, (available at http://www.ci.worcester.ma.us/reports/BudMsgFY07.pdf) the City Manager made repeated reference to his administration’s commitment to rein in health care spending as follows:

• It is now understood that the community’s and the City Council’s priorities can only be sustained over the long term through the strict adherence to fiscal responsibility and the restructuring of runaway cost centers… the cost of employee benefits these past five years has exceeded the City’s annual sustainable rate of revenue growth by nearly 300%. As a result, all other areas of the City budget and services were constricted and were reduced to account for this fiscal imbalance. (p.2)

•  Employee Health Care Cost Reforms, part and parcel of all new Worcester collective bargaining agreements, are producing results that will begin to reverse this most disturbing trend…these Employee Health Care Cost Reforms—when applied to all City collective bargaining units and non-represented employees—will generate $10.2 million in employee health insurance cost savings. For the first time in decades, the total bill to the Taxpayers for City employee health care will not increase, effectively level funded at FY06 amounts…The sole purpose of this effort is to provide an improved return on the Taxpayers annual “investment” and to continue to provide fair and balanced wages and benefits to our City employees, all while living within our means for the long term. (p. 3)

• It is now widely understood that Worcester can no longer afford to pay for wage increases and unreformed employee health insurance costs. (p.17)

 City workers in Worcester are now paying a higher percentage of their health insurance costs, and the City Manager’s recently-released Fiscal 2008 Annual Budget Message again highlights that “Worcester has made great strides in lowering employee health care costs for Worcester’s taxpayers while providing quality health care coverage to our employees and City retirees.” (available at http://www.ci.worcester.ma.us/reports/BudMsgFY08.pdf, p13) And while highlighting past success, it also lays out the Manager’s plan to seek additional future savings by using a third party prescription drug management company to oversee the City’s $24 million dollars in annual spending on prescription drug benefits.

Today, rapidly increasing health insurance costs are proving to be “budget busters” for many of Massachusetts’ 351 cities and towns. Double-digit increases in health insurance rates at a time when revenue growth has slowed has meant that many cities and towns face the prospect of cutting core services to pay for employee benefits. In February 2007, Massachusetts’ Governor proposed legislation aimed at relieving the property tax burden, and included a provision that would give cities and towns a new tool to address skyrocketing municipal employee health insurance costs. The proposal allows municipal employees to join the state’s Group Insurance Commission. The Group Insurance Commission (GIC) is a quasi-independent state agency established by the Legislature in 1955 to provide and administer health insurance and other benefits to the Commonwealth's employees and retirees, and their dependents and survivors. The mission of the GIC is to deliver high quality care at a reasonable cost, and allowing municipalities to enroll employees in the plan is expected to result in significant savings to cities and towns.