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August 17, 2009

Group Insurance For Cities Deserves Support

The Associated Industries of Massachusetts (AIM) recently announced a campaign to support legislation containing measures that would reduce costs and improve efficiency for municipal governments.

AIM’s campaign is intended to reinforce the work of the Special Commission on Municipal Relief, which consisted of legislators and labor and business leaders who prepared the bills and declared that it is essential to “ensure reform measures are adopted before asking taxpayers for additional revenue.”

This call is a welcome change in attitude from the usual statements by our state legislators that they have wrung all the savings out of government and have no alternative but to raise taxes.

Civil Service

A major driver of local increases in expenditures is health insurance for current and retired municipal employees. In Worcester, it is the single largest line item in the budget ($62.2 million) after the Worcester Public Schools ($252.5 million).

Since 2007, municipalities have had the option to enroll their employees in the Group Insurance Commission (GIC), the commonwealth’s health insurance pool for its employees. Because the GIC does not have to enter into collective bargaining for “plan design,” it has managed to control the rising cost of health insurance better than municipalities.

According to the commonwealth’s Department of Revenue, between FY02 and FY08, Worcester’s health insurance costs increased by 94 percent, but only by 65 percent for the GIC. In spite of the potential savings, only about two dozen municipalities have joined the GIC.

The sticking points seem to be two. First, management is reluctant to join because coalition bargaining is required to gain entry into the GIC and then to negotiate contribution rates subsequent to admission. This means that 70 percent of the representatives of a Public Employee Committee, composed of union and retiree representatives, must give their consent.

Many communities, like Worcester, prefer to negotiate employee contribution rates with each bargaining unit separately because of the difficulty in securing 70 percent agreement and to ensure that health benefits are tied to a total compensation package.

Second, unions are reluctant to consent to joining the GIC without concessions by management, because it would likely require them to give up their current preferred plan and relinquish all negotiating rights over plan design. Concessions on employee contribution rates would then reduce the savings generated from joining the GIC.

The root of the problem is that a double standard exists between how the state and municipalities manage their health insurance costs. Municipalities are required to submit all elements of public employee health insurance to collective bargaining, including plan offerings, deductibles, co-pays, and employee contribution rates. The state, by contrast, is able to set everything either by legislative or administrative fiat.

AIM proposes to eliminate this double standard either by making it easier for municipalities to join the GIC or by simply granting plan design authority to each community’s executive authority.

Ultimately, if the Governor and state legislators are serious about managing the escalating costs of municipal employee health insurance, they must grant municipalities the same authority the Commonwealth has over plan design.

Roberta Schaefer is the president and CEO of The Research Bureau; Stephen Eide serves as a research associate. Schaefer can be reached at

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