City looks to rein in health care costs

Proposal includes higher premiums for workers, restructuring of plans

By Andrea Damewood, Columbian staff writer

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If things don’t change, Vancouver will be at the steering wheel of what the government defines as a Cadillac insurance plan by the time federal health care reforms take effect in 2018.

Keeping up a Caddy isn’t cheap, and the cost of providing 1,093 city employees with health care is part of what’s driving the city’s budget into the ground: Health insurance is expected to cost the city $16 million in 2011 — a figure approaching half of the city’s projected $39 million in property tax revenue.

The pressure is on, city leaders say, to find a way to stanch the hemorrhaging.

“We need to get to the point where we don’t have to solve our budget crisis every two years by laying people off,” said City Manager Eric Holmes, who has made employee compensation a focus since taking his new job in November.

Fixing health benefits won’t solve the problem entirely. But as insurance rates rise in the double digits annually — and employee salaries and benefits comprise 70 percent of the budget — it’s a good place to start, he said.

Vancouver, based on advice from its contracted insurance brokerage firm, Mercer, has formed a three-point plan to bring costs down and keep them there.

The plan, outlined by Vancouver Human Resources Director Elizabeth Gotelli, starts with increasing how much union employees pay for their premiums and ends with a drastically different form of insurance. However, she noted, all changes are subject to bargaining with the unions; the city cannot simply dictate changes, as it would not be negotiating in good faith. All unions except for the Police Guild are currently in contract negotiations.

The city’s union representatives had little to say about the specifics of the plan, as health care is part of negotiations. But Rick Wilson, business agent for the Office and Professional Employees International Union, which represents about 150 city workers, said the fix can’t entirely be pushed on to the rank and file — the federal government must tackle the issue.

“Both parties (employees and the city) are starting to bear more and more of the burden, whether it is increased premium shares to employees or a reduction of services, where more and more things are not covered,” Wilson said. “Health care costs and issues go far beyond what the average worker can address and handle.”

Step 1

Workers covered by union contracts — about 70 percent of workers — have paid 10 percent of their dependents’ policies since 2007. The first step is to ratchet that contribution up to 15 percent in 2011, in order to keep costs level, Gotelli said.

Administrators and nonunion employees have already paid 15 percent of their dependents’ premiums since 2009.

Vancouver offers two health plans: one through Kaiser Permanente and the other through Regence BlueCross/BlueShield of Oregon. The majority use BlueCross, which — with a full family on the plan — costs the city $1,300 for police and fire employees and $1,280 for other employees. Every union has a different contract with different agreements on benefits — the numbers vary slightly.

For example, the city pays $1,221.10 for an American Federation of State, County and Municipal Employees employee with spouse and family. That employee now pays a flat fee of $59.00 per month toward dependent coverage. At 15 percent of the dependent share, that would increase to $156.72 a month. Kaiser costs a bit less; the rate per employee per month for the city is $1,019.20. The same employee with a family on Kaiser pays the $59.00 per month flat fee, which would increase to $133.87 if the share went to 15 percent of dependents’ premiums.

Getting unions to agree to that increase could be difficult, if a recent vote by the city council is any indication: A proposal by Councilor Jack Burkman that city councilors, who do not contribute to their medical premiums, bring their benefit contributions in line with management’s was voted down 5-2 in November. The savings to the city would be minimal — just over $3,500 in 2011 — but many were disappointed in the council’s failure to set an example.

“That sends an awful message,” Wilson said. “It was a shock to me. It’s not the savings; it’s the principle.”

Clark County, which employs 1,640 people, spent $26 million on health insurance this year, with no contributions from employees. County Human Resources Director Francine Reis credited a county employee health care committee with keeping cost increases at 4.5 percent over three years. In 2010, the county paid $1,194.51 per employee per month to administer its health plan.

The county must save an additional $5.8 million in health care costs over the next two years; the committee voted to pay higher service costs rather than begin paying a percentage of their premiums.

Yet even if city unions do agree to increase their payroll contributions to their plans, Gotelli said that it “will not solve the long-term problem.”

Step 2

Enter the second phase of change. Mercer recommended that the city restructure all of its plans by 2012, Gotelli said.

That means higher co-pays and deductibles, which could save a minimum of $1.1 million, she said. “This is where we think we can get the most savings,” she said.

Right now, under Kaiser, city employees have no deductible and pay nothing for hospital inpatient care. Most co-pays are $10, with a maximum on out-of-pocket spending of $1,200 a year. Under BlueCross, which offers more doctor and care options, the maximum out-of-pocket cost is $600 a year, and insurance pays 90 percent of most hospital and other health costs. Co-pays run about $15.

“We do have a generous health plan,” she said. “It has helped us be able to attract and retain competitive employees.”

Now that has to change, she said — likely by increasing co-pays to $20 or $30 and upping a family’s annual maximum to $2,000.

Step 3

Finally, after 2012, the city is eyeing a move to a consumer-driven health plan, Gotelli said.

The idea, like most insurance plans, is complicated — but the idea is that each employee is given an account from which they may pay their medical expenses. The plan has a high (think $6,000-plus) annual deductible, and both the employer and employee put a set amount of money into the employee’s account. An employee can choose to put in very little, or quite a bit. The balance carries over from year to year.

The plan encourages employees to take better care of themselves to avoid paying the high deductible, Gotelli said. But if they need to have surgery or pay for other high-cost health care, the money for it is in their accounts.

“It’s shifting the thinking and it shifts the focus,” she said. “It’s what we can sustain into the future.”

Wilson, of the OPEIU, said he’s never negotiated a contract with a consumer-driven health insurance plan before. He questioned what would happen if someone were hit with unforeseen medical costs over several years, or if someone had a chronic condition.

“If the impact of the (consumer-driven) plan is to penalize someone who has health issues, I would have some real issues,” he said.

But Wilson characterized the relationship between OPEIU and the city as good, and said his union is committed to bargaining to find a solution that suits both sides.

“These are difficult times — they’re the worst that we have gone through in my lifetime,” he said. “Working together, we’ll find the solution. They have to look at their own finances and try to balance that with the situation the employee finds themselves in.”