Massachusetts Municipal Association Alert – re municipal health insurance

May 27, 2011

SENATE PASSES ITS MUNICIPAL HEALTH INSURANCE REFORM PLAN

SENATE ADOPTS $30.5 BILLION STATE BUDGET, ADDS TO SEVERAL LOCAL ACCOUNTS

The Senate completed deliberations on its $30.5 billion version of the fiscal 2012 state budget at 11:58 p.m. on Thursday, May 26, including passage of a municipal health insurance plan that remained mostly intact even after days of heavy union lobbying against the measure, although several last-minute changes were made. The House of Representatives adopted a stronger version of reform in April as part of their state budget proposal.

The House and Senate versions of the state budget and municipal health insurance reform now head to a joint House-Senate conference committee that will agree on a final bill by late June. The MMA will be advocating for passage of the strongest possible reform plan, and we encourage all municipal leaders to call on their legislators to publicly support strong, meaningful and powerful reform that discards all impediments and hurdles to achieving real savings for taxpayers.

This Senate reform proposal is somewhat similar to the House-passed measure in allowing for plan design changes and joining the GIC, yet it sets up a process that provides unions and retirees with a more structured framework. Some elements of that framework may be impractical or costly, so close examination will be necessary. At the end of the day, the Senate proposal gives unions a voice but not a veto over changes in plan co-pays and deductibles, or joining the state GIC, and requires that no more than 33% of the first-year savings be shared with employees, compared to the House’s 20% level.

As we reported last week, the process established by the Senate plan differs somewhat from the House, yet the bottom line is closer than expected – cities and towns would be able to implement plan design changes or join the GIC in order to achieve savings that would be used to protect services and preserve municipal jobs, all while giving municipal employee unions more collective bargaining power over health insurance than state employees. The reform proposal would also require all municipalities to enroll all eligible retirees into Medicare.

SENATE AMENDMENT MAKES LATE CHANGES

Senators adopted an amendment that included a significant number of changes to the original language offered by the Senate Ways and Means Committee. The MMA will be carefully analyzing all of the amendments to determine their full impact to ensure that they do not impede or interfere with reform. Upon initial examination, these changes include:

1) Changing the local acceptance of the statute from a one-time vote of the Board of Selectmen in a town, or a one-time approval of the Mayor (or Manager) and Council in a city, to a vote to accept each time the community seeks to use the new law to change health insurance benefits.

2) Requiring that communities using this new local-option law must adjust, if necessary, the percentage contribution paid by retirees, surviving spouses and dependents to the average percentage contributed by active employees to their plans. This is the same requirement that exists in current law for any community wishing to enroll in the GIC. For some communities, this may not be an issue, but for a very large number, this new requirement could be extremely expensive and prohibitive, devouring most or even all savings from plan design changes. Many communities do not offer coverage for surviving spouses. For example, if a community has an average 80-20 contribution ratio for active employees and an average 70-30 or even 50-50 contribution ratio for retirees, the community would need to shift to an average 80-20 ratio for retirees in order to implement plan design changes under the new law. This could be a major issue in the conference committee, as the House has no such language.

3) Clarifying that the plan design changes that municipalities can initiate under the legislation include increasing co-pays, deductibles and tiered provider network co-payments up to the median amounts in the GIC plans. It appears that this would exclude communities from using the new law to introduce new plans with different provider networks. This section needs additional review to determine whether it would prevent other desired changes as well.

4) Allowing cities and towns to use the new law to transfer its employees and retirees into the state GIC, however, communities would be required to document that the savings realized by entering the GIC would be at least ten percent greater than the amount that would be saved by increasing co-pays, deductibles and tiered network provider co-pays to the maximum allowable level in the community’s existing plans. The MMA supports allowing communities to make the decision to join the GIC regardless of the savings level, and will be analyzing this new threshold requirement to determine whether it would impose a costly barrier.

5) Clarifying that cities and towns may adopt health reimbursement arrangements to mitigate the impact of any plan design change or decision to join the GIC (currently the GIC does not allow HRAs for new entrants). This provision does not mandate HRAs, but does allow them.

6) For all communities that have adopted Section 19 or have enrolled in the GIC, the proposed law would allow communities and public employee committees to request all claims data from the state group insurance commission and all insurers, third party purchasing groups or administrators.

7) Clarifying that for those communities in regional purchasing groups, the participating cities or towns must ensure that their proposed plan design changes presented to the PEC are consistent with the standards set by the joint purchasing group, intended to facilitate the challenging process of making group-wide plan design changes under the proposed law.

8) Addressing the constitutional standard that prevents any new law from interfering with any existing public or private contract, the Senate adopted language as follows: “Notwithstanding any general or special law to the contrary, changes made to health insurance benefits (under this new law) inconsistent with specific dollar amount limits on co-payments, deductibles or other health care plan design features that are included in a collective bargaining agreement in effect on July 1, 2011 or an agreement under section 19 of said chapter 32B between an appropriate public authority and a public employee committee in effect on July 1, 2011 shall not take effect until the expiration of the initial term of such agreement.” While this may be necessary language for those few communities that identify specific co-pay and deductible amounts in current contracts, this language could be highly problematic for any community that has adopted Section 19.

THE SENATE’S GENERAL FRAMEWORK FOR REFORM

• Each time a community wishes to increase co-pays, deductibles or tiered provider network co-pays or enroll in the GIC, the Board of Selectmen or Mayor/Manager and Council would vote to use the new law.
• The municipal executive would then propose a plan to modernize the design of their employee health plans or join the state GIC, with a guarantee that all municipal and school employees would still have health plans with co-pays, deductibles and tiered provider network co-payments that are at or lower than the median co-pays and deductibles offered by the GIC.
• Communities attempting to make plan design changes with the new law would be required, if necessary, to reduce the amount that retirees, surviving spouses and dependents contribute to their premiums, as outlined above. This would be a very costly (and potentially too costly) burden for many cities and towns.
• The municipal executive’s plan would include 1) the desired plan design changes or entrance into the GIC; 2) the projected 1-year savings (or avoided costs) that the plan would generate; and 3) a plan to mitigate or moderate the impact on retirees, low-income employees and those with very high out-of-pocket costs (such as through a health reimbursement account, through a temporary subsidy of rates, or other proposals).
• Communities would then convene a Public Employee Committee (PEC) identical to the make-up of the PEC in Section 19 of Chapter 32B. If a community already has adopted Section 19, then that would be the PEC. If a community has not adopted Section 19, then a temporary PEC would be established just for the purpose of negotiating on the proposal offered by the municipal executive.
• The community and the PEC would have 30 days to reach agreement on the municipality’s proposal.
• If no agreement is reached, the impasse would be referred to a three-member “municipal health insurance review panel” that includes a municipal representative, a labor representative, and an “impartial” third party from a list of experts in dispute mediation, municipal finance or municipal health benefits that is provided by the Secretary of Administration and Finance. If the community and labor representative cannot decide on the third member, the Secretary shall make the choice.
• This review panel would have ten days to review and decide four matters: 1) whether the plan design changes for co-pays and deductibles proposed by the community are at or lower than the median level offered by the GIC; 2) what the one-year savings amount would be; 3) for those communities seeking to transfer into the GIC, the panel would certify that the savings would be 10% greater than the savings the community could achieve by implementing plan design changes in its existing plans; and 4) whether the proposal to mitigate or moderate the impact of the changes on retirees, low-income workers and subscribers with high out-of-pocket costs is sufficient.
• If the municipality’s proposed changes do not exceed the GIC median, the panel is required to approve the immediate implementation of the plan design changes. If the community documents that it would save an additional 10% by joining the GIC, the panel is required to approve the transfer into the GIC.
• The panel would also confirm the projected savings amount, and would determine whether the mitigation proposal is sufficient. The panel could require additional savings to be dedicated to health reimbursement accounts, premium reductions, or other arrangements, but in no case can the panel designate more than 33% of one-year’s savings to the mitigation plan.
• Cities and towns would still negotiate any change in the employee-employer premium share, giving municipal unions more bargaining authority over health insurance than state employee unions. Any new co-pays or deductibles higher than the GIC median would have to be approved in collective bargaining.

While the House of Representative’s municipal health insurance reform plan is stronger than the Senate plan, it is important to note that the Senate passed a version that is a huge improvement over previous years. That progress was made possible by the dedicated work of Senate Ways and Means Chairman Stephen Brewer, Vice Chairman Steven Baddour, Vice Chair Jennifer Flanagan, Public Service Chair Katherine Clark, and was facilitated by the support of Senate President Therese Murray. Their efforts are deeply appreciated.

IN BUDGET NEWS, THE SENATE INCREASES SEVERAL LOCAL ACCOUNTS

During the Senate budget debate, Senators voted to increase several local line items as follows:

• Added $8.5 million to the Special Education Circuit Breaker;
• Added $3 million to Regional School Transportation;
• Added $2 million to Payments-in-Lieu-of-Taxes
• Added $1 million to the Shannon Grant Program