Just how robust is New York City's health care savings initiative?
Mayor Bill de Blasio on Feb. 26 trumpeted the "first significant changes to the city's employee health plans in over 30 years," and major progress toward a commitment by the city and the union umbrella Municipal Labor Committee to $3.4 billion in guaranteed health care savings through fiscal 2018 and $1.3 billion recurring every year after.
Some doubters say the de Blasio administration is taking credit for savings that would have happened anyway, while leaving other potential savings untapped.
Initiatives under the latest agreement, which city officials say could save about $150 million alone, discourage excessive use of emergency rooms and specialists through higher co-pays. They also offer employees referrals to alternatives including urgent-care clinics and in-network physicians.
"Those are some of the things they should be doing, like economic incentives for preferred doctors," said Howard Cure, director of municipal bond research for Evercore Wealth Management.
City labor relations chief Robert Linn,
The city, said Linn, projects that it has secured about $3.1 billion of that desired $3.4 billion total.
Linn, meeting with reporters after testifying at a Feb. 26 City Council finance committee hearing, said the city and unions could save more for fiscal 2017, which begins July 1.
"I assume we will exceed a billion dollars in fiscal '17," he said. "One of the excellent things that we've achieved is we now have identified $1 billion for fiscal '17 while we're only in the end of February and the parties have the ability to continue finding savings that we both can live with.
"It's our expectation that we'll eventually go beyond the $3.4 billion."
Restructuring specialist James Spiotto of Chapman Strategic Advisors LLC in Chicago called the search for efficiencies a smart move on New York's part, given the national trend of escalating municipal health-care costs.
"What New York is doing is constructive in the fact that unions and the city are working together and asking 'What can we do to promote more efficiency in health care?'
"The other thing people keep forgetting is that the average life span keeps going up," Spiotto added. "We've gone from a life expectancy of about 70 to about 82 today. By 2050 it figures to be 86. In 100 years we will have increased the life expectancy by about 15 years.
"Those numbers are significant."
Skeptics say many of the city's savings claims are simply re-estimates, that tapping into a healthcare stabilization fund for $58 million for fiscal 2016 is a mere one-off, and that economic incentives for certain uses of medical treatment were long overdue.
Meanwhile, the city's roughly 300,000 employees still don't contribute premiums to their health care plans, either the GHI comprehensive benefits plan or HIP Health Maintenance Organization, both of which operate under Emblem Health.
Muni analysts find that telling about the city's relationship with its employees.
"It's very unusual for municipalities these days," said Cure. "Even Chicago employees contribute and they have a militant union. It's virtually unheard of in the private sector."
Maria Doulis, vice president of the watchdog Citizens Budget Commission, gave the administration mixed grades overall.
"They get A for effort," she said on a recent Bond Buyer podcast. "This is the first time, certainly in my memory, where there has been really a joint working together of the city and the MLC to consider health insurance as part of compensation, as part of collective bargaining, as part of contract settlements and to set targets for meeting those savings, which is great."
Doulis, however, said tweaking estimates doesn't qualify as savings.
The administration, she said, largely projected annual insurance premium rates to rise 9% in its four-year financial plan, while actual rate hikes in fiscal 2016 and 2017 will be 2.9% and 6%, respectively.
"We really think that they get poor marks for crediting that toward the agreement, and using so much of that savings absolves them of doing more of the good stuff they've done," she said.
According to Linn, collaboration with the MLC enabled the city to cull new employee health data that revealed "tremendous excess" in use of emergency rooms and specialty physicians, as well as high instances of diabetes among city employees.
"It's one of the benefits of the information age," said Spiotto.
The package includes higher co-pays for emergency rooms and specialty doctors, with zero for primary care and an emphasis on wellness programs.
"It was extraordinary, when we got to the city, the number of things that other employers had done in collective bargaining that had not yet been done [here]. We are now happy to be making a lot of those changes," said Linn, who has worked both sides of the labor negotiation table, notably as chief labor negotiator under Mayor Ed Koch and also for the Patrolmen's Benevolent Association.
"The data that is necessary to run a plan effectively was not there, and we are now getting that data," said Linn.
Spiotto sees benefits beyond any fine print.
"What I really like is that it's a way of getting people on the same page. I think it's significant because it gets people together to communicate," he said. "This is not just taking people after they retire. This helps promote a healthier workforce. Hopefully when fewer people are sick, that benefits everybody. It's win-win."
Meanwhile, budget watchdogs and council finance committee Chairwoman Julissa Ferreras-Copeland also questioned the labeling of $58 million from the stabilization fund as savings.
"To call that a budget savings is, we believe, a far stretch," said Ferreras-Copeland, under whose watch the finance panel has been looking more broadly at budget items, including pension liability.
George Sweeting, deputy director of the watchdog Independent Budget office, said $148 million of the $400 million reported as savings in 2015 results from the MLC's decision not to require the city to reimburse the fund after an arbitrator overturned an initiative by de Blasio's predecessor, Michael Bloomberg, that tapped the fund to maintain parity between mental health benefits and general health insurance benefits from 2011 through 2015.
Another big item, Sweeting told the council, is $108 million saved by ending health insurance coverage for some dependents of city workers that an audit red-flagged as ineligible for coverage.
"There was no mention of attempting to recover the cost of the premiums paid in the past for those dependents," said Sweeting. "While it is good news that the city finally identified these cases, it is not clear that the averted costs represent savings that should count as part of a collective effort by the city and the MLC to alter the trajectory of health insurance costs."
Linn asserted that the savings are real.
"The money that comes of that fund closes budget gaps," he said. "There is nothing incorrect about those dollars. The full $700 million of budget savings are there, are real and have been identified."
Doulis said the opaque stabilization fund, established in 1984 to fund the difference between municipal plans and negate the need to pay out-of-pocket premiums and which the city and unions jointly control, has outlived its usefulness because the cost of HIP premiums exceed that of GHI. The city still makes large annual deposits – about $600 million to $700 million, it surfaced at the council meeting.
"It's no longer serving the purpose for which it was intended," she said.
