One size doesn’t fit all

the national conference of State Legislatures reported in January that 40 states must address shortfalls in their 2009 budgets, and 34 states also face shortfalls in their 2010 budgets. In both cases, the list includes Massachusetts. State officials here have already announced many cuts in services, including over $500 million in reductions to municipal aid. The Massachusetts Taxpayers Foundation has estimated that the state budget shortfall may still worsen. Whatever the final number, the state’s local aid contribution will be cut for fiscal year 2010, and municipalities will be scrambling to fill this hole through a variety of options.

One suggestion by former House Speaker Sal DiMasi was to have all municipal employees obtain their health insurance through the state’s Group Insurance Commission (GIC), a state agency that administers health benefits for the state’s employees and retirees. With health insurance costs representing about 10 percent of the typical municipality’s budget, the Group Insurance Commission has come to be seen as an economic safety valve that could use its bulk buying power to save money for cities and towns. The only hitch: Bulk buying power does very little to lower the cost of health care.

At Blue Cross Blue Shield of Massachusetts, we compete with the Group Insurance Commission, and, like any good competitor, we know what we’re up against. The truth is that the Group Insurance Commission is no panacea for lowering health care costs. Indeed, many communities would actually spend more on health care if they joined the Group Insurance Commission.

The GIC’s one-size-fits-all approach doesn’t work for the many municipalities with employees who tend to file fewer claims. For example, the Hampshire County Insurance Group, which covers 4,000 municipal workers, would pay an additional $12.8 million to $18.5 million over three years if they joined the GIC instead of choosing a “Municipal Blue” product from Blue Cross Blue Shield. Lowell’s chief financial officer said recently that joining the GIC would cost the city more money and employees would receive fewer benefits. Newburyport officials have determined that the GIC would cost $100,000 more than a comparable Blue Cross Blue Shield plan.

the perception that the purchasing power of the GIC will allow cities and towns to achieve health plan cost savings is fiction. If purchasing power lowered health care costs, Blue Cross Blue Shield of Massachusetts could achieve far greater savings than the GIC. Blue Cross Blue Shield is the state’s largest health insurer, with more than 3 million members. Nearly 500,000 Massachusetts governmental workers and their families use us as their health plan. The GIC, according to its website, insures 169,000 employees and their families, for a total of 300,000 people.

Purchasing power is simply not the driving factor in saving communities money on health insurance. In health plans like those offered through the GIC, costs are reduced largely by changing the plan’s benefit design. Any insurance company can do it. By having the employee pay a higher share of his or her premium, a higher copayment, or a higher deductible, any insurance plan, including Blue Cross Blue Shield of Massachusetts, can reduce the employer’s cost.

Addressing benefit design is one way to save cities and towns money, but there are other ways to address health care costs as well.

Choice is vital to ensuring that cities and towns make the best decision for the health of their employees and retirees, and for the fiscal health of their communities. The Legislature should consider requiring municipalities to solicit competitive health insurance bids at least every two years. Currently, a section of the GIC law mandates that towns and cities must join the GIC for a minimum of three to six years. Greater ability to bid will promote greater savings flexibility over time instead of locking a town into a lengthy contract.

The Legislature should require all municipal health claims administrators (health plans, joint purchasing arrangements, and the GIC alike) to provide towns with their specific claims data on a regular basis (at least annually). There is currently no standardized, consistent format for providing this data. This information is needed so that municipalities can solicit competitive bids from health plans on an ongoing basis. Communities can then seek real changes in their municipal health costs.

Municipalities should also be rewarded for putting their health care contracts out to bid and achieving actual savings. The state could utilize some portion of already existing funds, such as local aid, and dole it out based on a community’s success in reducing health care costs. Such an approach would give municipalities an incentive to seek out competitive bids and reduce costs.

Cities and towns should also pursue disease management and wellness programs. Should municipalities be required to implement these changes through a state mandate, the results will benefit municipal employees as well as help alleviate the costs of health care over time.

As governmental employers offer more plans that require greater cost sharing for employees, the employers should introduce more tools to help their workers pay these costs, including flexible spending accounts, health reimbursement accounts, and voluntary employee benefit arrangements. Health reimbursement accounts are like a savings account funded by the employer. Flexible spending accounts are savings accounts funded by the employee using pretax dollars. In either case, the result is a reduction in out-of-pocket costs, thus saving individuals money on health care expenses.

The three key factors that drive health care costs today are the same for municipalities as for the private sector: the costs of services such as doctor’s visits, prescription drugs, and hospital stays; the increase in the number of health care services being rendered; and the increased intensity of health care services (such as MRIs instead of X-rays). As policymakers consider these issues, they should provide incentives for payment methodologies that redirect focus from the quantity of services provided to promoting the improvement in the quality of the care received. Again, this longer-term proposal will hit the root cause of the rising costs of health care.

Meet the Author
All of these measures will require additional hard work; municipalities and health plans will need to be creative in arriving at sensible, cost-effective solutions. It won’t be easy, and it won’t happen overnight. But through the collective efforts of all, we can bend the municipal health cost curve.

See the GIC’s response to this essay here (third letter to the editor).

John Coughlin is vice president of select markets at Blue Cross Blue Shield of Massachusetts.