Idea #269 -- Transfer Health Care Insurance to the GIC

Idea #269 – Transfer Health Care Insurance to the GIC

Report Status: Fully Reviewed

Researched by: Anne Helgen

Original Idea as Submitted

We should offer a good deal to our employee unions to induce them to agree to letting the town go into the Group Insurance Commission (GIC) for the provision of health insurance. Currently, the town provides health insurance through a self insurance system that offers our employees a one-size fits all single health insurance plan. To lower its premium costs for that plan, the town has twice over the last ten years invoked MA General Law Ch. 32B to raise the deductible and copays imposed on our employees with devastating effects on staff morale that have negatively impacted our ability to recruit and retain our human capital - at considerable expense to the town. Since most GIC plans offer relatively low premiums, making this move will provide the town with the favorable premium structure it desires without going through the stress and tumult that will accompany its periodic invocations of Ch. 32B. In addition, the employees, who now have GIC copays and deductible without the accompanying GIC benefit of being able to choose from many plans, will get some choices that could prove very helpful. For instance, a relatively healthy employee could choose a GIC plan with high deductibles and copays but low premiums while other employees could go in the opposite direction. The City of Melrose calculated that it would save about $3 million a year when it went into GIC several years ago. It induced its employee unions to agree to the shift by slightly increasing its share of the premiums and still saved $2 million annually from the move - without enraging its staff. You have to give to get but there is a win-win opportunity here that we should not squander.

Other ideas included in this report

#337 – Review the Town's health insurance structure to see if there are different ways to reduce premiums.

Idea intent

Reduce health insurance costs and mitigate growth in costs

Weighted Final Score: 54 (Financial Impact: 5, Operational Impact: 2, Time Scale: 2, Ease of Implementation: 2)

Background Information

The Town of Belmont currently self-insures school and town employees and retirees’ health costs through its Health Insurance Trust. The Trust is self-insured and maintains a reserve to buffer against year-to-year variability in claims. Belmont handles enrollments, cancellations, and other subscriber changes in house. Plan administration is negotiated annually and is currently outsourced to Harvard Pilgrim. In 2012, at the time Belmont’s self-insured plan was put into place, the Town opted not to join the state-wide Group Insurance Commission (GIC), and instead created a plan that was intended to mimic the features and match the costs of the GIC with respect to co-pays, out of pocket expenses, etc.¹ Between 2012 and 2019, the GIC plan evolved and changed, but Belmont’s plan did not follow suit. In 2019, the Town redesigned its health care plan to match the GIC plan, resulting in an increase in plan deductibles and copays for the first time in almost a decade.

The Group Insurance Commission (GIC) is a quasi-independent state agency governed by 17-member commission appointed by the Governor. Established by the Legislature in 1955, the GIC was formed to provides and administers health insurance and other benefits to state employees and retirees, their dependents and survivors. In 2007, the Massachusetts Legislature approved the addition of city and town employee health insurance as a means to reduce the rate of growth in health care expenditures by accessing GIC’s economies of scale and broader risk base. The GIC also covers housing and redevelopment authority personnel as well as retired municipal employees and teachers in certain governmental units. The Group Insurance Commission (GIC) provides high-quality, affordable health insurance and other benefit options to over 220,000 subscribers and 460,000 members.² As of January 2022, 11 Massachusetts cites, 27 Towns, 10 school districts and other collaboratives (including LABBB) offer employee health insurance through the GIC. Neighboring communities that use the GIC include Arlington, Bedford, Brookline, Hingham, Lexington, Somerville, Sudbury, Watertown, and Weston. The GIC is responsible for designing and selecting the overall plan offered to its members and the participating towns are responsible for determining the employee/employer health insurance contribution ratios.

Municipal employers formally adopt Chapter 32B, Section 19 or Chapter 32B, Section 23 in order to join the GIC’s health plan coverage. Under Section 19, union members and retirees negotiate together as a Public Employee Committee (PEC) whether to join GIC health coverage and send a notice of intent to the GIC which starts the process. Under Section 23, the unions have 30 days to negotiate following notice of a proposal from the Town. If no agreement is reached after 30 days, the proposal goes to a review panel, which must order the transfer of enrollees to the GIC if, as measured by guidelines in the statute, the panel finds savings from the transfer would meet or exceed the savings test in statute 23 and would sufficiently mitigate the impact on those negatively affected by the transfer. The participation of non-union employees is determined by the municipality’s chief executive officer (Town Administrator). The GIC must receive the necessary subscriber data for a transfer by December 1st in order to initiate coverage by July 1st of the next year.

The bargaining agreement to joining GIC covers three issues: 1) whether to join GIC health coverage; 2) the heath premium contribution ratios, which must be consistent across types of subscribers; and 3) terms for withdrawal. Insurance carriers and benefits may not be bargained; GIC negotiates those on behalf of all of its subscribers. There is an initial minimum 3-year term requirement to join the GIC, after which municipalities can opt out.

For employees, there is often initial resistance to GIC consolidation based on resistance to changing healthcare providers and skepticism about state-led health care and potential changes in benefits. For municipalities, joining the GIC can result in savings and reduce the rate of growth of health care expenditures. Under Chapter 32B, these savings are shared with employees as a way to mitigate any increases in subscriber costs.

A major benefit to towns is that joining the GIC removes a key point of tension between unions and town government by transferring health insurance plan and design to a third party (GIC). The Select Board has the authority to change the terms of the plan without collective bargaining, however, presenting the plan can lead to contentious meetings between the Town, as health insurance provider, and employees upset with increases in insurance costs. This can lead to year-to -year inaction by either party, and has in the past resulted in the Town absorbing health insurance cost increases that would otherwise be partially passed on to the insured.

While many towns that have joined the GIC over the years have reported significant savings in health insurance costs, it is difficult to compare one town to another, as the starting points for each town are often quite different. The Town is currently in the process of reviewing what the potential cost savings would be if Belmont were to join the GIC and to understand what kind of mitigation there might be to offset increases in employee costs. The Select Board, in consultation with the Town’s health consultant, has recommended that the Town wait for the GIC to complete its bidding process for the FY24 plan in order to have the most current and accurate information to use to estimate any savings. This is expected to happen by this summer, as any town desiring to join would need to commit by December 2022 for the FY24 plan. The Town Administrator has reached out to the unions to update them and understand their perspective and views on such a move.³

If the Town decides to move forward, the Select Board will make a motion to engage in Chapter 32B, Section 23, as outlined above. After review by the Insurance Advisory Committee (IAC), the design plan will be negotiated with the unions, with subscribers represented by the Public Employees Committee (PEG), consisting of one representative for each collective bargaining unit, as well as a retiree. The plan will include the Town’s proposal to mitigate the impact of these changes for subscribers, including retirees, low-income subscribers and subscribers with high out-of-pocket health care costs, who would otherwise be disproportionately affected. The unions and PEG will then have 30 days to respond to the proposal.

Recommendations

School, Town, and retiree health insurance costs were budgeted at $12.4MM in FY2, representing 11.5% of the net operating budget. Between FY16 and FY21, total health insurance costs increased by a 5-year compound annual growth rate of 6.3%, well above the Town’s recurring revenue growth and directly impacts growth in the structural deficit. GIC growth rates are expected to be lower and initial savings will be calculated once GIC finalizes providers for the FY24 plan.

The SCIG recommends evaluating the new GIC plan when it is determined this summer and, barring any analysis to the contrary, moving forward with GIC for FY24 to help manage the Town’s health care costs. This supports the recommendation made by the Financial Task Force II in its July 2021 Final Recommendations.
The SCIG also recommends aggregating School and Town health insurance expenditures into a single budget (Town) to improve efficiency in tracking and analyzing total employee and retiree health insurance costs, simplify presentation and enhance transparency. This also supports the Financial Task Force II Final Recommendations of July 2021.

Next Steps

Town Administrator and Health Consultant to review GIC plan in late spring/summer and create plan for Belmont to join GIC.
Select Board, based on the projected savings and mitigation plan, to move forward under Chapter 32B, Section 23 to join the GIC.
Town Administrator and School Department to work together to consolidate health insurance expenditures in one budget line for the next budget cycle.