City of Worcester, MA in the winter

Impact - Municipal Employee Health Insurance

The Issue

Cartoon image of Public Employee  Health Insurance costs in Worcester MassachusettsIn FY91, The Research Bureau identified the cost of health insurance for Worcester's municipal employees and retirees as an expenditure that was spiraling out of control. At the time, the City was spending $23.4 million, or about 8.5% of its budget on this item, far more than the 3-4% of budget typically spent by the private sector and more than the other Commonwealth municipalities surveyed by The Research Bureau. The City's total expenditure had increased by 25% during the previous four years. The Research Bureau argued that negotiating a change in the City's contribution rate to 75% of the lowest cost provider would have saved the City $6.5 million in FY92 and $8.5 million in FY93. Since that time, The Research Bureau has tracked the skyrocketing cost of health insurance each year and calculated the millions of dollars that could have been saved by changing the City's contribution rate.

The FY05 analysis found that 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. We examined national trends in both the private and public sectors, and surveyed 28 cities in Massachusetts regarding employee contribution rates and plan design, including office visit and prescription drug co-payments. We found that Worcester's health insurance benefits are more generous and more costly to the City than most other cities surveyed, and far more costly than local private sector employers surveyed, who dedicate 7% or less of their budgets to employee health insurance benefits. We also found that co-payments and other elements of plan design were much more generous as well. Because of limitations on local property taxes and declining state revenues, health insurance expenditures were outpacing new revenue. Thus city employees and the services they provide were being sacrificed to pay for health insurance premiums. The Research Bureau again recommended that the City negotiate a change in its contribution rate to 75% of the lowest cost health plan premiums. We calculated that the savings of over $15 million could be used to hire 250 additional employees, or return an average of $260 to homeowners and an average of $1,300 to the commercial/industrial property owner.

The Results

The City Manager cited The Research Bureau report in his FY06 budget message calling for a change in employee contribution rates. 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. 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, confirmed the Research Bureau findings. But most significantly, Local 378 of the International Brotherhood of Police Officers and City Manager negotiated a contract that increases the employee contribution to 20% of premiums and 25% for new hires. It also increases employee co-payments for various services. The president of the union noted that it was unreasonable to ask taxpayers to finance such generous benefits. The City Manager was persistent in his view that the City could not continue to provide such rich benefits without cutting necessary municipal services.

During the subsequent five years, the City Manager negotiated changes in contribution rates, plan design, and co-pays that have saved taxpayers about $100 million.

Back to Top