Wednesday, February 3, 2016

The NYC Teacher Healthcare Crisis: Part 2, 'Toward the Tipping Point'

This is the second of three parts about the problem with health insurance that city employees are (all) about to face. This is some fairly wonky stuff but I'm convinced that, unless there is a shift in policy, we will all be paying -a lot- for our healthcare. 

Part 1: Great Insurance
Part 3: The Road Ahead

My last post, detailing how great our insurance is, ended on the somewhat gloomy note of the  Cadillac Tax, a tax of 40% of the health insurance premiums which will cost more than 10,200 for individuals and $27,500 for family coverage in 2018.

It is important that we start this discussion with that reminder. This is because avoiding the Cadillac Tax is in the best interest of every single NYC employee and of the city government. Middle class city employees don't want insurance that doesn't cover anything. But if the city, as employer, winds up paying an excise for each employee, then that's just what will happen.

The city government doesn't want this to occur either, because that would mean an enormous burden to the government budget if that were to happen. All of us -every single one of us- want to avoid having our healthcare reach this level. It would represent a political tipping point for the government, for the unions who advocate for our health coverage and for the insurance companies themselves (who would, ultimately, lose customers if the politics shifted away from coverage for all city employees). Lots of things (lots and lots of things) would change if we reached that level.

Lots and lots of things.

This is only one reason why the de Blasio administration has made lowering employee healthcare costs by $3.4 billion over four years a priority. Part of this goal is to lower costs by $700 million this year (FY2016) alone (Read the NY Observer piece on that here). They had set a goal of reducing costs by $400 last year but that seems, largely, to have failed.

As I mentioned in my previous post, 'since the Patient Protection and Affordable Care Act became the law of the land, the city has been required to note the amount they spend each year on all of our healthcare costs...This allows us ... to see how much the city has paid for our benefits'.

So we can get a sense of how much it failed just by looking over our W2 reports from work.  I took a quick look at my W2s for the two previous years and noted at how much the city paid for my free (to me) health insurance in the years 2013, 2014 and this past year 2015.

 All I can say is ... wow.

In 2013, the city paid a total of $17,036.14 on my behalf for my health insurance. That cost rose a reasonable 2.26% in 2014 to $17,422.10. Although a high cost, the increase is not bad and actually strikes me as the general cost of inflation during that period of time, so I'm good with that.

Last year, however, that cost jumped to $18,848.72 -a whooping 8.18% increase from the previous year and a more than 10% increase when measured against the year before.

That's startling enough. But, according to the observer piece  linked above, "... insurance costs [were only] projected to continue to climb by 5.2 percent a year."

In other words, costs aren't just going up. They're soaring. They are rising higher than the city expected and this includes a genuine effort on the part of the city of reducing the costs by $400 million last year.

 I'm no math expert, but I'd wager that an 8 percent increase in health costs is higher than the 5.2 percent increase that had been projected.

And I'm no policy expert, but I'm guessing that if you set a goal of reducing costs by $400 million and they instead rise by 8%, that the policy initiative has failed.

Now if my own costs keep going up at this rate, at the rate of 8% each and every year, my plan will be lucky enough to miss the threshold for the Cadillac Tax, but not by much. At an 8% the costs for my health insurance will rise to these amounts over the following years.


As you can see, I'll miss the Cadillac Tax by 2018, but only by $3,600 bucks or so. The thing, however, about the Cadillac Tax is that it remains in effect every year after. The cutoff amount rises from the initial $27.500, but no one knows how much it will increase until the government announces it the year before.

And what if the rate increases more than 8%? What if the costs soar so high that they increase by 10% per year? Or 12%? What if they jump by 15%?

Of course that sounds unrealistic, but think about this question for a moment: Precisely what is there to stop this cost from rising by 15% in a year or two?

Answer: Nothing.

And for that, I have to get into Obamacare a little bit.

Here's a less edited quote from the Observer piece:
"Nonetheless, insurance costs are projected to continue to climb by 5.2 percent a year. Mr. Linn, however, dismissed this growth as inherent to the healthcare industry... "

It's that quote right there, 'inherent to the healthcare industry' that you should pay attention . The great promise of Obamacare is that everyone would be covered because everyone would be signed up for private health insurance policies. People with no means for health insurance liked this promise because it meant they would be covered. The companies, who would offer inexpensive policies for people without the means, liked it too if not for other reasons.

Healthcare companies love Obamacare because the law mandates that everyone must be signed up.

The idea behind universal mandated coverage was that it would work both ways. The insurance companies would get access to millions of people they previously couldn't. And the customers would benefit from among the insurance companies for all of these new customers. Companies would lower the cost of policies in order to remain competitive.

What Obamacare missed was the grand combination of health insurance companies. This NY Times article from October points to just one of many pieces of evidence highlighting the fact that Healthcare companies in general are merging.

"Low interest rates and cheap capital are fueling merger activity across many industries, but health care is especially devoted to the mantra that bigger is always better. And there are both the short-term goal of increasing revenue and the longer-term need to restructure in response to changes in the health care landscape under the Affordable Care Act. Unlike other areas... health care has been fragmented, with many smaller players... 
...All of the parties are under intense pressure to reduce costs, and consolidation is seen as necessary to do so..."
This is a fancy way of saying that the Healthcare companies are getting bigger and are reducing our choice. I mentioned in my first post that city employees can choose from among 20 or so health plans. Actually, that's not exactly true. More than half of those choices are now owned by just three companies! Six choices lead you to an Emblem company, three lead you to an AnthemInc company and three lead you to a choice owned by Empire. (The other choices are small companies which will, I fear, be eventually eaten up. I'm sure someone will remember Greenpoint Bank, which was gobbled up during the 2000s by CapitlaOne. The same thing that happened to small banks then will happen here now).

With fewer companies, the simple law of supply and demand will kick in. When the government handed customers over to (what is now a few) insurance companies, those companies were free to -collectively- increase the cost. Maybe this is because everyone is sick. Maybe it's because the companies are greedy. Maybe it's both. Who knows.  But the price goes up with less competition and there is less competition.

I'm not economist, but I'm pretty sure that when demand increases, because the government forced everyone to buy private insurance, the price will increase as well.

And that's the fatal flaw of Obamacare. They (the health insurance companies of every ilk) have got us and they know they've got us. If I leave GHI and go to Vytra hoping for a lower price, I'm still using an Emblem Company who will, eventually, raise that cost as well).

So who is to say that the cost of my healthcare won't go up by more than 8% next year? Answer: The insurance companies.

Now I'm no hustler, but I'd wager to say that our rates will be averaging increases at or above 8% for the next few years. In fact, my guess is that they'll come as close to that Cadillac Tax amount they can get without going over it.

These increases will be despite the crisis of rates for city employees going up more than the projected 5.2% amount and despite the city's attempts to stop it.

But the city is pulling out more than a few creative stops. The Wall Street Journal Piece I linked to last night is behind a pay wall, but it details some specific steps the city has taken. There has been (another) audit of defendants designed to put people off the roles. And then there's this:

"And it found $153 million by reaching an agreement with the Municipal Labor Committee to lower the sum the city pays into the Health Insurance Stabilization Fund. The fund was set up to ease health-care costs for employees and is jointly controlled by City Hall and the unions"
Lots to talk about with the city's Health Insurance Stabilization Fund. But most of it is going to have to be for my next post. For now, I'd  just like you to re-read the last part of this quote:

"The fund was set up to ease health-care costs for employees and is jointly controlled by City Hall and the unions"

Now I'm no expert, but I'd wager that if you stop paying into a fund that exists to help you lower healthcare costs, that can't be very good.

And what else isn't good is what that fund has been used for in recent years. But, like I said, that's for another post.

So, despite kicking off dependents in an audit, and despite not paying into the very rainy day fund that is designed to help out, the city (while claiming a reduction is overall healthcare costs) is paying, on my behalf, an extra 8% for my health insurance (with similar numbers for at least two teacher friends I've spoken with).

This problem isn't going away.

'The city’s health-care costs are projected to increase to $5.6 billion in fiscal 2016, $6 billion in fiscal 2017 and $6.4 billion in fiscal 2018, city officials said.'

My guess is the price will soar past that $6.4 billion mark.

My last post won't be for a few days. I'll talk a bit more about the Stabilization Fund (including how the unions (ours included) have allowed the city to use it in the past) and I'll try to detail some things you and I may be losing if and when we reach the tipping point.

Part 1: Great Insurance
Part 3: The Road Ahead


  1. A tad confused about your first blog post on the insurance topic. How does insurance work for retired teachers? Do they pay the same abount as what is deducted from their paycheck the day before they retire? In other words, do retired teachers start paying for their insurance after they retire in the amount that is the same from what was deducted from their paycheck from when they were working? How does it work for prescriptions? If you stay in the Welfare Fund, is the cost of mail order prescriptions the same for retired teachers as that of working teachers? Any info is appreciated!

    1. Good questions. Of course, that post is about working teachers, but I would be happy to research the structure of retired teachers and get back to you on that.

    2. The cost for the high option rider after retirement is about $235. a month for a couple. When Medicare eligible the cost goes up by about $8. per person a month, but this is just for the high option rider. There are additional monthly premiums for both Medicare and Medicare part D, the prescription component of Medicare.
      Upon retirement the prescription plan changes completely, as coverage is no longer administered by the UFT but by GHI. That plan, I hear, is awful, and, yet, way better than the Medicare coverage.

    3. It is now several days later. The Citizens Budget Commission asserts that GHI and HIP members pay nothing in retirement. Please see page 6

  2. It is clear that the problem is Obamacare and along with it, the fact that healthcare is a profit making business in this country. A very big profit maker. This law was lobbied for and written by the insurance companies solely for their benefit.
    We should all be pushing for single layer health care. I am nauseated when I call ghi
    and am forced to listen to their "on hold" message, This is what care feels like. This is not what care feels like. Care is not having to go through a litany of not questions completely irrelevant to your physical state before you are seen by the doctor. Care is walking out of the hospital in Sicily or London paying nothing because it has been prepaid by the citizens of that country.
    We are taxed a plenty in this country, but we get nothing in return. Other countries are taxed and they have great infrastructure, excellent public schools with educational goals set by teachers, paid maternity leave, health care that really cares for the patient not just the bottom line, the list is long.
    Envision a different mind set here.

  3. In 2008, the average private employer-sponsored family plan cost a total of $12,680, with employees footing $3,354 of the bill, according to Kaiser data. By 2016, the cost of the average employer family plan was up to $18,142 for the year, with workers picking up $5,277 of the tab. This amounted to employers and employees paying about 50% over the past eight years—but they could have risen far higher had Obamacare not passed. The Kaiser study shows average family premiums rose 20% from 2011 to 2016 -- much lower than the previous five years (up 31% from 2006 to 2011) and the five years before (the Bush years) that (up 63% from 2001 to 2006, an average 10.5 percent a year).
    The average premium for a family with employer coverage is now almost $3,600 lower than if premium growth since 2010 had matched the decade preceding the Affordable Care Act.