Local budgets hit hard by rising healthcare costs

Municipal health insurance costs are expected to grow 12 percent in the suburbs northwest of Boston next fiscal year, consuming a large portion of the tax increases allowed by state law, according to a Globe NorthWest survey.

Officials of 34 Massachusetts cities and towns told the Globe that their preliminary budgets for employee health insurance in fiscal 2006, which begins July 1, will total $212.3 million, a $22.7 million increase from this year. Overall, the projected increases represent about two-thirds of the amount that property taxes are permitted to rise under Proposition 2½, a state law that limits the annual increase in property tax revenue to 2.5 percent, plus revenue from new construction. In nine northwest communities, the increase in health insurance costs alone exceeded the Proposition 2½ limit.

''The healthcare crisis is caused by a group of complex factors," said Geoffrey Beckwith, director of the Massachusetts Municipal Association. ''More sophisticated and costly treatments, less funding of both Medicare and Medicaid by the federal government, and state surcharges for the uninsured are all adding to the problem."

The two towns with the biggest expected increases for fiscal 2006 have similar explanations.

In Chelmsford, where health insurance costs are expected to rise 31.7 percent, Town Manager Bernard Lynch cited several serious illnesses that caused beneficiaries to incur huge medical bills. In Stoneham, which expects a 25 percent increase, Town Manager Ron Florina also cited several serious illness that boosted costs. In addition, Stoneham employees covered by the Massachusetts Municipal Association's insurance pool have used the benefits at a higher-than-average rate.

The cost of prescription drugs is also driving up health insurance costs. Stan Cochran, who directs the Massachusetts Municipal Association's insurance pool, cited the growing popularity of the cholesterol-lowering drug Lipitor as a significant factor, though he did not have specific figures.

Municipal budgets also feel the effects of changes in health insurance in the private sector. Glen Tepke of the Massachusetts Taxpayers Foundation noted that many businesses are increasing copayments and deductibles, and increasing employees' contribution levels. Some small companies have stopped offering health insurance.

As a result, many town employees with spouses working in the private sector have transferred their spouses' insurance coverage onto public-sector plans. Tepke estimated that this adds 4 to 5 percent annually to municipal health insurance costs.

Choice of hospital also can affect costs. According to Cochran, teaching hospitals, such as Massachusetts General Hospital and Beth Israel Deaconess Hospital in Boston, tend to charge more than nonteaching hospitals. The use of teaching hospitals drives up costs, Cochran said, though within the region, communities closest to Boston don't necessarily have the highest healthcare costs because other factors come into play.

The choice of hospitals does appear to have helped hold down healthcare costs for 16 towns in the Concord area. According to Tony Logalbo, finance director of Concord, employees of these communities tend to use less-expensive hospitals such as Emerson Hospital in Concord, Nashoba Hospital in Ayer, and Leominster Hospital.

To help control costs, Cochran suggested that communities can implement such steps as increasing copayments for outpatient treatments, increasing deductibles, and increasing the contribution levels for employees.

All of these changes, however, would require negotiations with numerous city and town unions, because health benefits are subject to collective bargaining by state law.

In the long run, said Cochran, local communities are at the mercy of broader forces. Realistically, their only choices are to cut spending on other budget items or raise taxes.

''The healthcare issue is a national issue," he said, ''and cannot be solved by the cities and towns in Massachusetts, or even for that matter by the Commonwealth itself."

Bob Hilliard, a resident of Reading, is a former finance director for the town of Wayland.