Last month, a years-long effort by the New York City government to shift the city’s retired workers to a cost-cutting health care plan suffered a major setback when insurers supposed to administer it decided to to step down, citing an uncertain start date amid an ongoing health care plan. lawsuit brought by retirees seeking to stop the change.
The setback could cost the city’s unions hundreds of millions of dollars — and pit retirees against current workers in a battle over meager benefits.
That’s because anticipated savings from the retiree care change were intended for a union- and city-controlled fund that pays health benefits for active union workers. Until the city and unions find another insurance company to replace the ones that pulled out, the fund will miss those savings, which the city has estimated at $600 million a year.
The city will suffer no immediate financial consequences from the delay, since the Common Health Insurance Premium Stabilization Fund, as the cache is called, is separate from the city budget. Its revenue comes from city dues and EmblemHealth, the city’s largest employee insurer. The amount of their contributions varies from year to year, depending on the cost of premiums and negotiations between the city and the unions.
The city and the unions jointly decide on the use of the balance of the fund. It is generally used to pay insurance premiums for union members and to provide dental and vision coverage and drug plans. But it has also been used for purposes unrelated to health, such as spending $1 billion in 2014 to pay for salary increases.
Already, this fund is facing financial challenges. In each of the past three years, due to rising benefit costs and declining contributions from EmblemHealth, the stabilization fund has spent more than $250 million more than it had. received. That trend puts it at risk of running out over the next three to four years, according to the nonpartisan Independent Budget Office. As of mid-2021, the fund balance was approximately $1 billion, up from $1.8 billion in 2016.
The city and unions hoped that the $600 million in annual savings from switching to Medicare Advantage would provide another source of revenue that would allow the fund to continue to provide premium-free health insurance and supplemental benefits. Now both could be in danger.
“Not having savings definitely creates a fiscal challenge that the city and unions will have to address in the coming years,” said Ana Champeny, vice president for research at the nonprofit Citizens Budget Commission.
Union leaders also expressed dismay at the potential effects of lost savings.
If the fund runs out, “the most likely situation would be that unions would have to cut some benefits,” for current workers, such as extra vision care and dental care, said Robert Croghan, chairman of the board. administration of the Staff Organization. Analysts, a union representing city office workers in many agencies.
“This is an issue hanging over our heads of the greatest kind, and I know it can’t go on forever,” Croghan added.
Harry Nespoli, chairman of the Municipal Labor Committee, a coalition of municipal unions that negotiated the Medicare Advantage deal, said he was “concerned” about the loss of savings for the stabilization fund since the failure of the agreed, but declined to say whether he thinks the benefits it provides are at risk.
“That remains to be seen. I don’t have a crystal ball,” he said.
Many retirees have opposed the change for months, warning that switching to a Medicare Advantage plan could lead to higher costs, smaller networks and more barriers to care.
“The unions are in this situation because they tried to cut corners on the backs of people who had already earned these benefits,” said Marianne Pizzitola, president of the New York Public Service Retirees Organization, the group that sued to shut down the switch.
“Unions shouldn’t go after current retirees. Their changes should be made to active employees or future retirees,” Pizzitola added.
If the unions can’t get the savings from the Medicare Advantage change, they could ask the city to make up for losses from the stabilization fund.
In future rounds of labor negotiations, the city’s unions are already expected to push for larger increases than the less than 2% annual increases budgeted by Adams. If there is no replacement for the Medicare Advantage agreement, unions could also ask the city to inject additional money into the fund.
“There could be implications in negotiating their employment contracts, because if they want to continue to offer free services, they are going to have to find savings in a different way,” said Elizabeth Brown, spokeswoman for the Independent Budget Office. .
But with tax revenues plummeting, unions may not be able to convince Adams to cough up more money, especially since the city is already at the mercy of billions of dollars in windfall contributions to its pension funds. due to a weak stock market.
A spokesperson for Adams declined to say whether the city would consider making additional contributions to the stabilization fund.
A replacement offer?
The Adams administration and City Labor Committee leaders have said they intend to pursue Medicare Advantage change by partnering with another insurer. A new deal to change retiree health care coverage could allow the fund to access planned savings before it is truly threatened with bankruptcy.
The city does not have to repeat the bidding process to award a new contract, according to a spokesperson for City Comptroller Brad Lander. Instead, it can simply offer the contract to health insurance giant Aetna, which was the second-highest-ranked bidder in the initial set of bids.
Adams spokesperson Jonah Allon confirmed that the Adams administration is in discussions with Aetna about a possible Medicare Advantage plan, and Aetna spokesperson Rosemarie Miller said the company was “interested and in active discussion regarding this opportunity”.
Nespoli said the municipal labor committee is potentially favorable to the proposed contract with Aetna. “They’re one of the companies looking to do that, and we just have to find out,” he said.
But even if Aetna or another provider wins a contract to provide a Medicare Advantage plan to city retirees, it might not save as much money as the city and unions initially hoped, because many retirees have opted out of not participate in the Medicare Advantage plan.
The more retirees there are, the less money the city saves, in part because the switch to Medicare Advantage transfers much of the cost of care for retirees from the city to the federal government.
More than 65,000 retirees had opted out of the Medicare Advantage plan as of April, according to data from the city’s Office of Labor Relations obtained by New York Focus via a public records request. That’s more than one in five of the city’s 250,000 retired employees.
Under the city’s original plan, retirees who opted out of Medicare Advantage would have had to pay $191 a month to maintain their current coverage, which for most retirees is a plan known as Senior Care. This meant that even if retirees opted out of Medicare Advantage, the city would still have saved money by requiring retirees to pay for coverage they previously got for free.
But in March, State Supreme Court Justice Lyle Frank issued a ruling prohibiting the city from charging retirees who choose to remain enrolled in elder care. Without this incentive to switch, it’s likely that even more retirees will choose to opt out of Medicare Advantage, further reducing the amount the city will save.
“To the extent that they are required to continue to provide free care for the elderly, the savings will not fully materialize,” Champeny said.
The Adams administration is currently appealing Frank’s decision and asking to be allowed to start charging retirees for eldercare, with arguments in the case scheduled for next month.
Unions are hoping the city will win its appeal, allowing them to continue with a Medicare Advantage plan and begin charging retirees to maintain their current coverage, before the stabilization fund’s cash runs out, Nespoli said.
“We are still waiting for the trial to be handed down in September. So everything is really still up in the air right now,” Nespoli said.