Friday, December 8, 2006
Town benefits provide budget challenge
On November 28, the Board of Selectmen (BOS) heard a presentation by Finance Director Larry Barton on town benefits. With yearly increases in the double digits, the cost of benefits has provided an on-going challenge for managing the town's operating budget within the increases recommended by the Finance Committee (FinCom). For FY08, the FinCom is holding departmental increases to 2.9%.
Health costs up 12% per year
Health care has been rising 12% per year in Massachusetts, which is the most expensive state in which to buy health insurance, according to Barton. Carlisle is part of the Minuteman Nashoba Health Group (MNHG), a consortium of towns which negotiate together for lower rates. Six plans are available through Harvard Pilgrim, Tufts, and Fallon. Currently family health premiums for town employees vary from $9,500 per year to $27,500 per year, depending on the plan, with individual rates from $4,400 to $10,400. Of 240 town employees, 150 take part in the health plan.
Regular employees working 20 hours per week or more are offered benefits. Carlisle is among the lowest in its contribution to health care at 50%. Other towns in the consortium offer 60% to 90%. However, Barton noted a 50% increase in Carlisle's contribution would cost the town at least $400,000 per year.
Group Health Insurance is available for employees, spouses, and dependents. The town contributes half of the monthly premium, and the employee pays half. Also, according to MGL32B, municipalities are required to provide life, accidental death, and dismemberment insurance with a 50% contribution. Carlisle offers $5,000 in basic life and $5,000 in death or dismemberment at this 50% rate, with supplemental life, dependent life, and long-term disability available at a 100% employee contribution.
Retirees receive the benefits they were eligible for at retirement, with the necessity to apply for Medicare after age 65.
Other plans include dental insurance, deferred compensation plans, a teacher's tax shelter annuity plan, and a "cafeteria plan" for setting aside pre-tax dollars for uninsured medical or dental care. All of these are paid for by the employee. All employees contribute to the Middlesex County Retirement System (MCRS), the Massachusetts Teachers Retirement System, or the Omnibus Budget Reconciliation Act of 1990 (OBRA) deferred compensation plan (for part-time employees not eligible for the other plans) in lieu of Social Security, for which municipal employees are not eligible. Carlisle makes an annual appropriation to the MCRS, this year expected to be about $500,000, and this has been rising at a 7 to 8% rate "pretty consistently," according to Barton. He says the typical employee contribution to the retirement plan is now between 9% and 11% of salary.
A change to the dental plan is likely in the spring, as many employees have requested a better plan, and Barton has found one willing to take on our employees in spite of small numbers. The new plan, like the old, will be 100% employee paid.
Can costs be controlled?
"Twelve percent a year is not sustainable," said Tim Hult, and John Williams agreed, noting that at this rate, health insurance costs will double in six years. He questioned if there were any alternatives for managing the increase. Barton said the downside of membership in MNHG is that everyone has to agree on the same plans and "it's very difficult to change plan design, so reining in increases is very difficult to do." Increasing co-pays, for example, can reduce costs significantly as higher co-pays discourage overuse of emergency facilities, but co-pays are set by the consortium.
However, according to Barton, the advantages of MNHG membership offset the disadvantages. Not only does the group have more negotiating power, it is also able to provide administrative support, self-funding, and other services. Employees who are under a drug plan, for example, can take advantage of an MNHG plan that purchases certain drugs from Canada, reducing costs and eliminating the co-payment. There have been on-going requests from other towns to join the MNHG, an indicator things are even worse outside. In a follow-up phone call, Barton noted that exploring alternative health plans is difficult because insurance companies are notorious for low-balling first year premiums in order to gain new customers, then raising rates precipitously.
There is a proposal in the state legislature to open the Government Insurance Plan to municipal employees requiring health insurance. This could be an avenue to reduce premiums. However, the proposal includes other requirements, such as the creation of a town commission and long-term enlistment, that may mitigate the advantages. "It's worth exploring and we will do a thorough analysis at the time, but it's too early to make a recommendation at this stage," said Barton.
He remains concerned that "Employees in an environment of 3 to 3.5% cost of living increases are finding that rate increases [in health insurance] are more than eating into cost of living." But he adds, "I'm not sure rates will continue at 12%. We're not the only ones suffering, and there's a lot of momentum behind health care reform. It's a shifting landscape." If changes aren't made, low-paid and part-time employees will find that "almost everything they make is going to insurance. They will be priced out of the insurance programs, something we don't see right now."
Barton was also asked by the Selectmen to investigate the possibility of including part-timers in the plans paid for 100% by employees. Firefighters can currently pay into the health plan at a 100% contribution and may be interested in the dental and other plans.
© 2006 The