Healthcare costs soar out of control
A common refrain this spring in local town and city halls is that despite increased revenues, jobs or programs will have to be cut. The culprit, according to municipal officials, is an increase in fixed costs, which are rising faster than tax receipts.
These costs vary from community to community and can include utility bills, contractual obligations, and pensions, but the major factor is health insurance .
It's not that municipal employees are sicker, or even that there are more of them -- in many cases there are fewer on the job now than in 2000. But per-employee annual costs for healthcare to municipalities covered by City Weekly have almost doubled since then, according to officials in Boston, Brookline, Cambridge, and Somerville.
In Brookline, which pays 75 percent of premiums, the annual total premium for insuring a family has grown from roughly $10,400 in fiscal year 2001 to between $16,000 and $17,000 in 2008, despite the town's seeking lower-cost plans. Boston has also seen its 90 percent contribution to employee premiums surge -- from $6,844 in 2001 to $13,105 in 2007. Mayor Thomas Menino called that contribution "unsustainable" in a Chamber of Commerce speech in January.
According to a Boston Municipal Research Bureau report of November 2006, the city cut 1,176 employees between 2002 and 2006. But in that time it also spent an additional $187.5 million on employees, two-thirds of which was to cover benefits, such as healthcare.
"The rising cost of healthcare is a major problem for Boston and other municipalities, but it can be solved if the Legislature votes to give us the ability to join the Group Insurance Commission," Menino said in a statement referring to Governor Deval Patrick's proposal to allow municipalities to join the state insurance plan. "Without this change, healthcare costs will continue to take a larger piece of our budget."
Somerville has been able to contain costs slightly by offering wellness programs to its employees and self-insuring, which means it pays out claims, rather than paying an insurance company to do so. But even there, the cost of insuring an employee on a family HMO plan has risen from $9,888 in 2002 to $16,572 this year. While the city has not yet had to cut positions to cover health costs, it could as soon as 2010, according to Treasurer William Fowler .
Cambridge has taken a similar tack, but has seen its plan rates for families rise from $6,000 to $8,700 in 2000 to $14,000 to $18,400 this year, according to figures provided by Sheila Keady Rawson , the city's deputy director of personnel .
Additionally, municipalities pay a percentage of health premiums for retirees -- and more retirees are living longer.
Cambridge, which, like Somerville, is self-insured, has reduced employees from 2,695 in 2000 to 2,612 this year, said Rawson. But its retirees in that period increased from 2,051 to 2,166. Its total health costs have risen in that period from roughly $22 million to almost $42 million.
Municipalities are also picking up for the private sector, according to the Lexington town manager's report for fiscal year 2008. That report states that town employees are increasingly opting for family plans as their private-sector spouses' coverage is reduced or eliminated.
Because of these factors, health insurance consumes an increasing percentage of total municipal budgets. In Brookline, these costs have risen from 6.5 percent in 2000 to 12.5 percent for the coming fiscal year, which starts in July. Boston's health budget is now 11 percent of its operating budget, as opposed to 7 percent six years ago. That means this year, Boston is paying $234.8 million for employee health insurance . In Somerville, health costs accounted for 11.5 percent of the budget in fiscal year 2001, and 17.4 percent in this fiscal year.
Municipal managers are increasingly looking to contain these costs -- and a few, Brookline among them, are starting union negotiations that eventually may allow them to join the state's health plan. While Boston's costs have risen 92 percent from 2000 to 2006, the state's have risen 61 percent, in part because the state doesn't have to negotiate every plan change with unions, as cities and towns do.
But until the annual increase in employee health costs falls below the increase in annual municipal revenues, governments will be running what is called a structural deficit -- meaning they will have to raise revenues to keep services at the same levels each year.
To start to address this gap, most municipalities are trying to reduce their contribution to health insurance. Cambridge started increasing the employee contribution to its plans, from 10 to 12 percent in fiscal year 2000. As of last Dec. 31, some employees were up to 15 percent, and next year some will increase to 18 percent. Somerville is in negotiations with its unions to increase their contributions from between 1 and 10 percent to 15 percent, which is where non-union contributions are now. Boston pays 90 percent of HMO premiums, less for other kinds of insurance.
Another option, recommended by the Municipal Research Bureau, is to require retirees to enroll in Medicare, which shifts most of that cost to the federal government. Brookline and Cambridge have already taken this step, but almost half of the state's municipalities -- including Boston and Somerville -- have not.
Towns are also being encouraged by federal officials to estimate their future retiree health costs.
Town Administrator Richard Kelliher compared Brookline and other towns to 
