New York City Over-Pays for Health Insurance. City Workers Still Get a Bad Deal.
Who is the biggest buyer of private health insurance in the Big Apple? New York City government: Its insurance plans cover some 1.25 million people – roughly a quarter of privately insured New Yorkers – at an estimated cost of almost $9.5 billion in the current fiscal year.
Despite being such a major health insurance customer, however, the City does a poor job of leveraging its market power for the benefit of its workers. The result: It makes excess payments of almost $1.2 billion a year to insurers.
The principal beneficiaries: two insurers that cover 95 percent of City workers and retirees. They are EmblemHealth, a non-profit providing out-patient coverage, which was created from a 2006 merger of two longtime City employee insurers, HIP and GHI; and Empire Blue Cross, which shed its formerly non-profit status 25 years ago, and which covers hospital care for some one million City workers.
The city’s large non-profit hospital networks also indirectly but handsomely benefit from this system.
There are two elements of health insurance costs: premiums paid to an insurance company; and out-of-pockets costs (such as deductibles and co-pays) paid by participants. The City’s employee health benefits plan costs too much in both respects.
The City currently spends $8.1 billion annually for core medical and hospital care for active and under-65 retired City employees. It also contributes some $1.34 billion a year to provide dental, vision, prescription drug, and other coverage to welfare funds maintained by municipal employee unions (and a similar fund for management employees).
This total of almost $9.5 billion compares very poorly with the cost of other multi-employer health plans covering private sector unionized workers in the city. In fact, the two largest such plans (for members of Locals 1199 and 32BJ of the Service Employees International Union) spend roughly $2,600 per covered employee less than the City does for a comparable basket of benefits. That amounts to an excess annual cost of $1.18 billion in City spending.
Municipal unions have long fought to maintain health benefits that don’t require employee premium contributions – a significant benefit for EmblemHealth and Blue Cross enrollees. However, it comes at the price of higher co-pays and reduced benefits for health plan members. Many City employees face resulting out-of-pocket expenses substantially larger than they’d bear if they were covered by either of the two multi-employer plans mentioned above, or by the roughly comparable Empire Plan covering New York State workers, which requires monthly premium co-pays of $90 for individuals and $190 for families.
The table below, drawn from the “Summary of Benefits and Coverage” Federal law requires every health plan to publish, compares expected 2021 out-of-pocket payments for three common health spending scenarios – having a baby, managing type 2 diabetes, and treatment for a simple fracture – and shows how much more New York City employees wind up paying.
Why does such an unsatisfactory arrangement persist? Chalk it up to a combination of inertia, complacency, and, given influential anti-public employee union sentiments, a defensive aversion by municipal labor leaders to tinkering with the status quo.
The current system originated as part of an optimistic post-World War II vision of the City leveraging its support of HIP (a pioneering health maintenance organization, or HMO) and GHI to enable those non-profits to serve the broader public as well as City workers. It was an early version of a public-private partnership designed for the common good. In the end, an unanticipated proliferation of other employer-based insurance plans, as well as other social and economic factors, kept that vision from becoming a reality. Nevertheless, HIP’s HMO premium remains stubbornly (and anachronistically) embedded in the City Administrative Code as the benchmark for City health insurance benefits. And for more than 20 years, there have been no City requests for proposals (RFPs) that might identify lower-cost or improved-quality health insurance providers.
The status quo certainly suits the city’s private hospitals, who negotiate reimbursement rates for hospital care with insurers, not least among them Empire Blue Cross. On average, private insurers reimburse such private hospitals at twice the rates that Medicare pays – and hospital claims account for about 40 percent of City worker insurance spending.
Municipal unions are wary about changing the system as well. In 2018, the U.S. Supreme Court ruled that public unions can’t require workers to pay dues to cover collective bargaining costs; faced with that, the popular supplemental health services covered by union benefit funds make good arguments for dues payment. Union leaders also are well aware that for decades the business establishment-dominated Citizens Budget Commission, among other voices, has argued that City government should make its workers (most of whom are decidedly low- and middle-income wage earners) pay even more out-of-pocket for their health care.
In reality, workers already pay more than they should. So, unfortunately, do City taxpayers. And with the 2021 City elections coinciding with serious pandemic-induced budget problems at City Hall, the time is ripe for a dialogue about making fundamental changes.
That could start with asking why, for example, the City buys insurance from EmblemHealth and other insurers in the first place. This incurs “risk charges” that would be avoided if the City self-insured, as most other major public and private employers do. Eliminate premium taxes and other expenses that only insured products incur, and self-insuring would knock about $1.6 billion off the City’s annual health insurance costs. And why shouldn’t the City follow San Francisco’s example concerning our well-heeled non-profit hospitals, and negotiate reduced reimbursement rates in return for the generous property, commercial, and income tax waivers it grants them?
Last November, a New York Times article suggested that the upcoming mayoral election could be a contest among candidates advocating progressive politics versus those campaigning for better municipal management. Proposing reforms to the City worker health insurance system would be a good way of winning both arguments.
Barbara Caress has worked for many years in non-profit, union, and public agency health care and administration. She teaches health policy at Baruch College.
Photo by: Matias Campa.