HomeMy WebLinkAbout2008-11-05-AC -GIC-memo
Memo to: Carl Valente
From: Michael Kennealy & Deborah Brown
Date: November 5, 2008
Re: GIC
Attachments: (1) Lexington health benefits expense growth projections
(2) Brookline memo
Lexington’s employee health benefit expenses will consume $22.1 MM in FY2009,
16.5% of FY2009 general fund expenses of $134.5 MM. Like many municipalities in
Massachusetts, Lexington has endured double-digit annual growth rates for health
benefits for a number of years. (The state average was 13% from FY2001-FY2006) In
an effort to get a handle on these expenses, we’ve been exploring one relatively new
option for municipalities – joining the state’s Group Insurance Commission (GIC).
We conducted interviews and gathered information from a number of sources,
including:
Group Insurance Commission (GIC):
Lisa Boodman, General Counsel, and Cynthia
McGrath, Communications Director
Metropolitan Area Planning Council:
Joel Barrera, Project Director
From the MAPC website: As communities consider whether joining the GIC
makes sense for them, the Metropolitan Area Planning Council (MAPC) is
available to provide assistance in organizing and facilitating conversations with
union members and other critical participants, identifying benefits and barriers to
making the switch, providing additional staff support, and more.
Massachusetts Teachers Association (MTA
): Paul Toner, Vice President
The MTA has hired Boston Benefit Partners (see below) to provide consulting
services to local teachers’ unions considering joining the GIC.
Boston Benefit Partners, LLC:
John Brouder, Partner
(See MTA above)
Town of Brookline:
Richard Kelliher, Town Administrator
Brookline has accepted coalition bargaining in anticipation of negotiating an
agreement to join the GIC. The town has done extensive analysis demonstrating
significant potential savings but has not yet reached agreement with its unions.
West Suburban Health Group
: Marc Waldman, Treasurer, Town of Wellesley
The West Suburban Health Group provides a group purchasing option for a
number of metrowest communities, including Wellesley, Needham, and Natick.
[need complete list]
Massachusetts Municipal Association (MMA
): Geoffrey Beckwith, Exec. Director
The MMA has its own health benefits arm, the Massachusetts Interlocal Insurance
Agency (MIIA) Health Benefits Trust. The Trust offers another insurance pool
option to municipalities, offering exclusively Blue Cross insurance products,
making it a direct competitor to the GIC.
Page 1 of 3
We were particularly interested in learning how GIC has achieved its lower costs
and slower expense growth rate. Our research suggests the following contributing
factors:
Scale – ability to negotiate favorable insurer rates due to the size of its insured
pool
More co-pays, and in some cases, higher co-pays; this has contributed to lower
base rates for plans but has remained stable – that is, GIC has not increased co-
pays as a method of controlling expense growth
Freedom to change plan design and plan offerings
Wellness programs
Tight controls over eligibility
We were also interested in whether this slower expense growth rate is sustainable.
We concluded that there is a high probability that GIC’s advantages are
sustainable, due to:
continued attention to plan design and offerings (and the ability/freedom to alter
both)
increasing investment in wellness programs
heavy emphasis on data collection and analysis as well as tight eligibility controls
and, most notably, the GIC’s aggressive pursuit of tiering strategies to influence
consumer – i.e. employee - choice (charging higher co-pays for services provided
at higher-cost health care facilities vs. lower co-pays for lower-cost providers of
similar quality/outcome history)
advantages of scale only increase as additional municipalities join GIC
We have both been persuaded that the time is ripe for putting GIC on the
bargaining table, for a number of reasons:
Significant potential for cost savings – both for Lexington and its employees.
(See Brookline analysis; they estimated a cost savings of 10% in year 1.)
8% growth vs. 13% historically for cities and towns – benefits both the town and
employees. (See attached spreadsheet of hypothetical savings over 5 years for
Lexington; we would anticipate/recommend that some portion of these savings be
shared with employees.)
Reduces/eliminates the annual town expense associated with our health benefits
consultant, and eliminates the administrative burden of managing health benefits
in-house.
Simplifies future bargaining over health benefits, since only the town/employee
contribution split is negotiable for communities in the GIC.
We can now draw on the experiences of towns similar to ours which have joined
(Weston) or are pursuing (Brookline) GIC.
Despite limited history with municipalities, GIC has long, successful history of
providing a rich selection of health benefit choices to 275,000+ state employees,
with high level of subscriber satisfaction.
GIC is a sophisticated system (tiering, analytics, etc.); when combined with scale,
should ensure a cost advantage in the future.
Page 2 of 3
MTA is supportive and will provide consulting services (through Boston Benefit
Partners) to local unions, upon their request, analyzing plan choices and cost
savings to assist in negotiations.
Process has an established roadmap already (though fewer than 24
communities/school districts have gone all the way down the road). Information
is available from MAPC, including examples of negotiated agreements with
unions over GIC. Brookline has also been very generous in providing documents
from their ongoing analysis and negotiation.
The state’s current budget deficit and gloomy revenue forecasts call for bold steps
to address major cost centers. The current crisis may help break down the usual
barriers.
Though the state may remove the union veto, starting now is low risk for us (we
already have coalition bargaining) and the potential for state action could be a
catalyst for the unions to be cooperative (chance to join on their terms).
Recommendation on moving forward:
Determine potential for cost savings in Lexington and conduct comparative
analysis of plans (as Brookline has done - engage consultant, solicit RFPs)
Preliminary discussions with unions - introduce concept, encourage them to
engage a consultant (MTA will provide one at no cost to the local teachers union)
to independently determine the benefit to employees and provide some
comparative analysis of plans
Begin negotiations to develop a win/win plan benefit both employees and the
town. Potential areas for negotiation/barriers to overcome include:
the absence of a Blue Cross plan offering in the GIC
o
demonstrating that, despite increased co-pays, the vast majority of
o
subscribers will experience lower costs overall because of lower plan costs
agreeing on a reasonable estimate of anticipated year-1 savings (requires
o
making assumptions about which plan(s) will have the most subscribers;
this can be influenced by varying the town contribution % by plan) and
deciding how this will be shared between the town and employees
We urge the town to keep its eye on the big win with GIC – slowing the growth of
health benefit expenses. With this primary goal in mind, and keeping year-1
expense reduction as a secondary goal to the first, we can have a thoughtful
discussion around such strategies as:
Varying town contribution % by plan to influence subscriber choice and
o
reward employees selecting lower-cost plans
Providing higher salaries in exchange for reducing town’s health benefit
o
expenses
Sharing a greater proportion of annual health benefit expense savings with
o
employees in exchange for a lower town contribution %
Page 3 of 3