Part 1: Great Insurance
Part 2: Toward the Tipping Point
Part 3: The Road Ahead
More than eighty percent of all city employees pay nothing from their paychecks for their (Great!) health insurance. Since 1983, employees have been on the verge of paying in order to help offset the rising costs the city's healthcare plans. While an endless amount of schemes have prevented this from happening, they were at the end of the day just schemes. Now, as Obamacare brings us all to a Tipping Point, it looks as though the city and the unions are pulling their fingers from the dam and walking away from any attempt to stop the inevitable from happening: Having employees pay for at least part of their insurance premiums from their cash paychecks. This would equate to a reduction in pay and it would most certainly be coupled with a reduction in the services we currently receive from the plans.
Read on for the hows and the whys
On May 6, 2013, Michael Mulgrew announced to his UFT Executive Board that the union and city reached an agreement on a new contract. Teachers would receive wages and back pay (albeit through a gradual arrangement where teachers didn't actually receive it for six more years) and the city would not be hit with over $3 billion in up-front costs. Both entities would now be 100% committed to keeping city spending under control. The city leaders, who wanted to show responsible fiscal policy and the union leaders, who wanted to ensure that there was money in the budget for the lump sum payments their member would receive for years to come were now all in it together.
Among the terms of the deal, the city would be able to withdraw $1 billion dollars from the Health Insurance Premium Stabilization Fund, an account funded by 81 unions and the city to help defer healthcare costs during times of need. This withdrawal would be what covered the initial costs of the contract(s). According to Mulgrew that evening, every single union leader in the city was on board with the withdrawal expect for one -the union that represents Sanitation workers- but that would soon change.
The ultimate agreement did indeed withdrawal $1 billion from the Health Insurance Stabilization Fund. That money was, in fact, used to cover our cash wage increases the following September (here or the IBO (p. 13)):
"...a one-time $1.0 billion transfer from the Health Insurance Stabilization fund, which was a product of the agreement between the city and the municipal labor committee on ways to help fund the current round of collective bargaining agreements..."
The Health Insurance Premium Stabilization Fund is a lot like Luke Skywalker from the latest Star Wars movie. No one hears from it, few understand it, yet everyone looks to it to come and save the day. Yet to understand the fund and to understand how it's being used, is to understand the true nature of the health care issues we're all facing.
The fund was created in the mid-80s in order to help cover heathcare costs. This piece from the CBO provides a wealth of information about the fund's history and our need to have it. Ninety percent of all city employees use (either) GHI (or HIP) for their health insurance. As I mentioned in my first piece, it's great insurance and its free to employees. But this means the city must pay 100% of the premiums.
In 1983, during the Koch administration, the state capped the amount the city was permitted to pay on behalf of employee health insurance premiums. This cap was set at whatever the state's HIP rate was. The CBO piece I linked to asserts that any health insurance premium costs which were in excess of that HIP amount would have to be passed on to employees. After reading headlines from that year from all three levels of government, this seems to make perfect sense. These costs, however, were never passed on.
Instead, just one year later, when the cost of GHI actually rose above the amount the city was permitted to contribute, the Health Insurance Premium Stabilization Fund was created. The idea was that both the city and the unions would contribute to it and, when healthcare costs exceeded the amount set by the state, the fund, not employee contributions, would cover the difference. It has been covering the difference (whenever there has been one) ever since.
Since the mid-80s, the fund has covered Welfare Fund premiums (for the UFT and other unions) and city budgetary shortfalls as well. In order to help cover the cost of not laying off employees in 2011 (FDY and UFT employees were both on the chopping block), the unions and the city agreed to dip into the fund to cover the city budget prevent the layoffs (here).
And now they've dipped into the fund to pay employee salaries.
This is supposed to be the fund that relieves us from paying (or paying greater) health insurance premiums. Instead, it is being used to cover our paychecks.
And now, as part of a larger effort to reduce the city's health insurance costs, the city will be paying even less into the fund than it already does (here)
The largest projected savings [in healthcare] this fiscal year—$153 million—would result from an agreement labor relations commissioner Bob Linn and the municipal unions recently struck to allow the city to pay less into a fund jointly controlled by both parties and known as the "Health Insurance Premium Stabilization Fund."
You can only draw one conclusion from this: They are tapping the fund. It is no longer a fund to ensure our health insurance costs are not passed on to workers. It has become a source of income which supports city level governmental policy. And while those policies are admirable (over the past five years, they have included balancing the city budget during the Great Recession, enabling union contracts to be settled and reducing the long term costs of healthcare) they are still policies wrought by politicians who are leading a government. They no longer see the fund as a way to avoid having workers pay into their healthcare plans. That's an important distinction to make.
That goal -to avoid having city employees pay into their healthcare plans- is more than thirty years old. Rising healthcare costs were a major concern for Reagan, Cuomo I and for Ed Koch. 1983 was a tough year for all three levels of government. On the Federal Level, Congress had to extend unemployment insurance (here). On the state level, Cuomo did what he could he offset the cost for municipalities (incurring large state debt in the process) and on the city level, Ed Koch, the centrist mayor from New York, was looking to offset the costs for his city. In 1983, he got the state to approve a cap on the amount the city was permitted to pay on behalf of employees for health insurance. The next year, he and the unions agreed to jointly fund the newly created HISF. This effectively offset rising costs the healthcare to all of the unions. It's brilliant policy, but it probably also meant increases in dues for members in order to pay for the contributions to the HISF.
When healthcare costs rose more, GHI and the unions reached a deal to ask for co-pays from people who visited health care professionals. This offset asked those who needed it the most to bare the burden of healthcare costs. As costs rose, the co-pays rose. They are now at $20 for most visits and they will do nothing but go up from here.
As this has happened, actual payments to healthcare practitioners have gone down (see here for out of network practitioners. For in network practitioners, take a look at any settlement notice from your insurance carrier about a visit to your local doctor. You'll find the cost they paid to be exactly the same since 2007; an effective 17% decrease in payments when accounting for inflation. Feel free to drop a comment if I'm wrong).
All three of these -the creation of the HISF, the creation of a co-pay system and the subsequent increase of those copays- had only one goal in mind: Avoid making all city employees pay into the system from their paycheck. This has been coming down the 'pike for more than 30 years.
Now, with Obamacare's Cadillac Tax threshold approaching, the city and the unions are slowly walking away from one of those attempts -fully funding the HISF and holding it holding in reserve to offset costs. These things are no longer practiced. This is a pretty clear signal as to what is yet to come.
During the recession, state employees were asked to pay 25% of the cost of their family coverage. As a city worker, this didn't effect me. But if it had it would have meant payroll deductions worth $4,712 per year, or $196 from each check. This would haveequated to a 6% reduction in my pay.
The United Federation of Teachers and other unions will not stand by as their members see a six percent reduction in pay. Besides, no on understands the depth of the crisis, so members would be too upset. Instead, expect the union and the city government to come up with a common sense solution. This solution would include
- Minor payroll deductions from everyone's paychecks (say 2% of the total cost?)
- An increase in co-pays (because what's the point if we can't all punish the sick and the elderly)
- A further reduction in the actual amounts that the health insurance providers pay to health care providers.
Whether this last point reaches its own tipping point is anyone's guess. Doctors who ask for $500 for a visit and receive only $80 are perfectly free to turn around and charge the patient for the difference (we all sign a form agreeing to do this when we first visit a doctor). Perhaps they'll start to charge patients for the difference, thus further increasing the cost we pay for our healthcare. Perhaps they won't.
One thing is for sure. Among the 99%, no one in this nation has health insurance as good as we have. Given that costs have been rising for three decades now and given the implications the Cadillac Tax brings, that party is about to come to an end. And the next party will be BYO penicillin.
Relive the fun!