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Special report

Runaway health costs are rocking municipal budgets

But there’s no will or willingness to roll back benefits granted in palmier times

By Sean P. Murphy
Globe Staff / February 28, 2010

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First of two parts.

Elizabeth Debski spent eight years as Everett’s city planner, before losing her job in 2006 when a newly elected mayor installed his own team.

But Debski did not leave City Hall empty-handed. In addition to her pension, Debski, at 42, walked away with city-subsidized health care insurance for life. If she lives into her 80s, as actuarial charts predict, taxpayers could pay more than $1 million in all for her family’s health care benefits.

That’s not to say Debski manipulated the system. She simply took what she was owed under a municipal health care system whose generous benefits and colossal inefficiencies are crippling cities and towns across Massachusetts.

A six-month review by the Globe found that municipal health plans, which cover employees, retirees, and elected officials, provide benefit levels largely unheard of in the private sector. Copays are much lower. Some communities do not force retirees onto Medicare at age 65. Many citizens on elected boards - some after serving as few as six years - receive coverage for life, too.

As medical costs across the board rose over the past decade, municipal health care expenses exploded, draining local budgets and forcing major cuts in services, higher property tax bills, and billions in new debt.

“It has got to be dealt with,’’ said Richard Fortucci , the chief financial officer in Lynn. “Or we will all go bankrupt.’’

The cost of municipal health care more than doubled from fiscal 2001 to 2008, adding more than $1 billion in all to city and town budgets, according to state Department of Revenue data. A Globe survey of 25 communities found that they now devote, on average, 14 percent of their budgets to health care, up from 8 percent a decade ago. Somerville, for one, spends $20 million more annually than it did 10 years ago, now devoting almost 20 percent of its budget to health care.

So far, with powerful labor unions resistant to giving away hard-won benefits and a lack of political will in the state Legislature to force changes, efforts to overhaul the system have fallen short.

To be sure, many municipal employees, elected officials, and retirees are paying a greater percentage of their health premiums than ever. Still, almost all of the increase in municipal health care costs in the past 10 years has been shouldered by taxpayers, who are subsidizing plans that are often superior to their own.

“It’s a nice deal,’’ said Debski, now a part-time planner in Malden.

She could get insurance through her husband’s employer but doesn’t, for a simple reason: The municipal plan is far more generous and costs less.

“The system was there,’’ she said. “I find it hard to believe that anyone wouldn’t take what the system offered.’’

A crippling cost
The consequences of failing to face this crisis are on display in many cities and towns, nowhere more vividly than in Lawrence.

In that city, on Feb. 1, children were momentarily trapped in a burning apartment building, down the street from a fire station. But the city had recently shuttered the station, to help close a $24 million budget gap, and firefighters had to race from another location. The children escaped, but the fire chief warned the city it may not be so lucky next time.

Meanwhile, Lawrence, one of the poorest municipalities in Massachusetts, continues to pay among the highest rates in the state for health care benefits. The city’s health care kitty, which it uses to pay for coverage, is currently $4 million in the red.

Health care costs are not the only budget-buster for cities and towns, of course, but their rise has led not just to fewer firefighters in Lawrence but diminished services across the state.

Library hours have been cut in Wayland and Hull. Wakefield has deferred road and sidewalk repairs. Malden has introduced fees for trash pickup. Class sizes have increased in Chelsea. Major layoffs have hit, among others, Boston, New Bedford, Worcester, and Brockton - with officials in all those communities citing rising health care costs as a major factor. Revere last year closed City Hall on Fridays, to save cash.

“What am I going to do next, put a padlock on the police station and tell people to call the State Police instead?’’ asked Mayor Thomas G. Ambrosino of Revere, who, like other mayors, is covered by municipal insurance.

Communities, under a 30-year-old initiative known as Proposition 2 1/2, can raise their tax levy each year by no more than 2.5 percent. In Revere, health care costs are rising at close to 10 percent a year. This fiscal year, the rise in health care expenses alone is projected to consume all of Revere’s $1.5 million allowable tax increase - and then some.

With health costs soaring year after year, communities must ask taxpayers for more money even while providing fewer services. Indeed, local officials say, Proposition 2 1/2 overrides - loathed at kitchen tables - are often attributable, at least in part, to skyrocketing health expenses.

Voters in Weston passed a $1.1 million override in 2006, primarily because of health care costs, which had risen by more than 80 percent in four years.

It proved to be a temporary fix. By 2009 Weston needed more money to cover health care increases, said Donna S. VanderClock, town manager. The town avoided another override after unionized employees agreed to join the state’s health care system, saving about $1.7 million in the first year, VanderClock said.

Beyond the immediate costs, huge liabilities loom. Communities have promised current and future retirees billions in health care subsidies, a burden taxpayers will bear long into the future.

Lynn owes current and future retirees an estimated $450 million in benefits over the course of their lives - five times as much as it takes in annually in taxes, according to estimates by city actuaries. Brookline’s unfunded liability for health care is $320 million; Boston’s is $5.7 billion.

Though some communities, such as Wellesley, Needham, and Boston, have begun putting aside interest-earning money every year to help meet those obligations, the vast majority of municipalities have not. Local officials say they can barely afford to pay today’s health care bills, let alone tomorrow’s.

“We have an unfunded liability of more than $600 million and with no plan to address it,’’ said John Condon, Brockton’s chief financial officer. “Even if we wanted to address it, we don’t have the money for it.’’

‘Very, very rich plans’
Jane Teal said she only wanted to help her hometown when she ran successfully for Lynn City Council in 1995. She served for six years, then stepped down, eventually moving to Florida with her husband. Today, Lynn taxpayers are paying $22,600 a year for the couple’s health care.

“It never crossed my mind that I would get insurance when I ran for office,’’ she said. “But I am glad to have it.’’

Six former city councilors are insured by Everett, plus 12 current ones. In Kingston, 10 part-time elected officials receive town-subsidized health coverage, including four Planning Board members, three Health Board members, and a sewer commissioner, all of whom typically attend two meetings a month.

“That’s the way it’s been done for a long time in Kingston,’’ said Dennis Randall, vice chairman of the Board of Selectmen. “But in tough times, everything should be under review.’’

The extension of benefits to local elected officials is one vivid example of how generous many municipal health care plans are. In fact, national data show that state and local government pay significantly more for health benefits than private employers.

Municipal health care plans were once deemed affordable and have helped cities and towns attract workers to the public sector, where salaries have often been lower. Today, however, they stand out for their comparatively low cost to subscribers and favorable terms.

Taxpayers now underwrite as much as 89 percent of active employees’ premiums in some of the state’s largest cities, while private-sector employers often cover less than 70 percent, local and state data show. As health care expenses have climbed for everyone, taxpayers - already paying a generous share of municipal benefits - have been hit especially hard as those benefits have grown more costly.

The insurance plans many cities and towns offer to employees, retirees, and elected officials also require minimal out-of-pocket expenses, with copayments for office appointments as low as $5. Most have copays for emergency room visits of $25 or less.

By comparison, private-sector copays for office visits are typically at least $20, sometimes more, with $75 copays standard for emergency room visits, according to a survey of Massachusetts employers by the state Division of Health Care Finance and Policy. Unlike most municipal plans, private-sector plans also often force subscribers to pay thousands annually in deductibles before insurers pay anything.

In addition, cities and towns are among the last employers to offer costly indemnity plans, which provide virtually unrestricted medical care. Though phased out in much of the private sector, indemnity plans live on in about a third of Bay State municipalities, according to a 2008 survey by the Massachusetts Municipal Association.

Even with family HMO plans, which typically limit access within a defined network of providers, municipal premiums are, in some cases, 30 percent higher than in the private sector, according to a Globe survey of communities and state data.

Though cities and towns have some control over what benefits they provide, they are limited by state law: Not only does the law subject health benefits to local collective bargaining, the state also imposes certain mandates on municipalities. Communities that offer health care to active workers, for example, must also offer coverage to retirees.

The generous terms of municipal plans compound the problem, because they create incentives for higher use: Low out-of-pocket costs - particularly the minimal copays - encourage subscribers to use more medical services, thus driving up the overall expense to communities.

“When a group uses a high number of services, high premiums result,’’ said Brian Pagliaro, senior vice president of Tufts Health Plan.

Among the communities that pay the highest family premiums are Framingham, which spends $34,075 per family; Waltham, at $30,100; and Everett, at $26,000.

“The municipal plans are rich plans,’’ said Mayor Joseph A. Curtatone of Somerville. “They are very, very rich plans.’’

A boon for retirees
For taxpayers, there is no relief in sight, and for one simple reason: Municipal health benefits are especially good in retirement, and the number of retirees has grown by a steady 2.5 percent per year since 2001, in part because of longer life expectancies.

Under state law, any municipal employee with 10 years service is eligible, in retirement, to get health care benefits for life from age 55, a benefit typically worth hundreds of thousands of dollars per person. (People such as Debski, who have 20 years public service - she worked 12 years in Salem before going to Everett - can immediately qualify if they are terminated, regardless of their age.)

Most municipalities also grant spouses generous health care benefits.

In some cases, retirees and spouses live decades beyond the date of retirement, the Globe found in a review of thousands of pages of municipal retirement records. The widow of a Lynn police officer who retired on disability in his 30s in 1953 is still receiving city-subsidized insurance - 57 years later.

Less than one-quarter of private-sector retirees nationally receive any health care benefits from their former employers, said Roland McDevitt, director of health care research for the consulting firm Towers Watson.

Some cities and towns do not even compel retirees to use Medicare for nonemergency care once they reach 65, in effect leaving millions of dollars in federal subsidies on the table. Instead, retirees choose to stick with the more generous, and more costly, municipal plans.

Communities, under a state law passed in 1991, can force employees to enroll with Medicare, but only if the change is approved by the city council or town meeting. In some places, that has proven politically difficult, given the clout of active and retired municipal workers.

Boston, Lowell, and Lawrence are among those that have yet to adopt the provision. In Boston alone, there are more than 1,500 retirees who are eligible for Medicare but do not take it, costing the city almost $5 million, according to city estimates.

“Getting into Medicare is a tough vote,’’ said Condon, of Brockton. “People don’t like change. And in Brockton, we have more than 700 retirees on the voting rolls.’’

Other municipal retirees don’t sign up for Medicare simply because they are not eligible. Most police, firefighters, and teachers retire before age 65, and are thus too young to be covered by the federal system. That means cities and towns pay as much to insure them - at least until they reach 65 - as they do to insure active employees.

Even when retirees are on Medicare, it is still expensive for municipalities, because state mandates require communities to help cover drug costs and other expenses not paid by the program. By contrast, private-sector retirees are typically on their own.

“In the private sector, when you turn 65, most employers say, ‘Good luck on Medicare,’ ’’ said McDevitt, the national health care consultant. “And that’s it.’’

Tomorrow: How cities, towns, and the state have tried and often failed to solve the problem.

Sean Murphy can be reached at smurphy@globe.com.