The cancellation of a proposed cost-saving health plan after retired city workers sued could drain a special fund City Hall and unions use to pay employee benefits. Story from The City by Sam Mellins. August 10.
Last month, a years-long effort by the New York City government to move retired city workers to a cost-cutting health care plan suffered a significant setback when the insurers slated to administer it decided to withdraw, citing an uncertain start date amid an ongoing lawsuit by retirees seeking to stop the switch.
The setback could cost the city’s unions hundreds of millions of dollars – and pits retirees against current workers in a battle over scarce benefit dollars.
That’s because the anticipated savings from the retiree care switch were destined for a fund controlled by the unions and the city that pays for active union workers’ health benefits. Until the city and unions find another insurance company to replace the ones that pulled out, the fund will be missing out on those savings, which the city estimated at $600 million annually.
The city won’t suffer any immediate financial consequences from the delay, since the Joint Health Insurance Premium Stabilization Fund, as the cache is known, is separate from the city budget. Its revenue comes from contributions from the city and EmblemHealth, the largest insurer of city employees. The size of their contributions varies year to year, depending on premium costs and on negotiations between the city and the unions.
The city and the unions jointly decide how to spend the fund’s balance. It’s generally used to pay union members’ insurance premiums, and to provide dental and vision coverage and prescription drug plans. But it has also been used for non-health related purposes, like a $1 billion expenditure in 2014 to pay for wage increases.
Already, that fund has been facing financial challenges. In each of the past three years, due to increasing benefit costs and decreasing contributions from EmblemHealth, the stabilization fund has spent over $250 million more than it took in. That trend puts it at risk of running dry within the next three to four years, according to the nonpartisan Independent Budget Office. In mid-2021, the fund’s balance stood at about $1 billion, down from $1.8 billion in 2016.
The city and the unions hoped that the $600 million in annual savings from the switch to Medicare Advantage would provide an alternate revenue stream that would enable the fund to continue to provide premium-free health insurance and supplemental benefits. Now, both could be at risk.
“Not having the savings definitely creates a fiscal challenge that the city and unions will need to address these next few years,” said Ana Champeny, vice president for research at the nonprofit Citizens Budget Commission.
Union leaders also expressed consternation at the potential effects of the lost savings.
If the fund does run dry, “the most likely situation would be that the unions would have to cut some benefits,” for current workers such as supplemental vision and dental care, said Robert Croghan, chair of the executive board of the Organization of Staff Analysts, a union representing city office workers across numerous agencies.
“This is a hanging-over-our-heads problem of the largest sort, and I know it can’t go on forever,” Croghan added.
Harry Nespoli, chairperson of the Municipal Labor Committee, a coalition of city unions that negotiated the Medicare Advantage deal, said that he is “concerned” about the loss of savings to the stabilization fund since the deal fell through, 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 switch for months, warning that moving 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 effectuate a saving on the backs of people who’d already earned those benefits,” said Marianne Pizzitola, president of the New York City Organization of Public Service Retirees, the group that sued to stop the switch.
“The unions shouldn’t be taking this out on current retirees. Their changes should be effectuated on active employees or future retirees,” Pizzitola added.
If the unions can’t get the savings from the Medicare Advantage switch, they could ask the city to make up the stabilization fund’s losses.
In upcoming rounds of labor negotiations, the city’s unions are already expected to push for bigger raises than the less than 2% annual raises budgeted by Adams. If there’s no replacement for the Medicare Advantage deal, the unions could ask the city to kick in extra money to the fund as well.
“There could be implications in negotiating their labor contracts, because if they want to continue to offer premium-free services, they’re going to have to find savings in a different way,” said Elizabeth Brown, a spokesperson for the Independent Budget Office.
But with tax collections slumping, unions may not be able to convince Adams to cough up more cash, especially since the city is already on the hook for billions of dollars in unexpected contributions to its pension funds due to a weak stock market.
A spokesperson for Adams declined to comment on whether the city would consider making additional contributions to the stabilization fund.
Both the Adams administration and Municipal Labor Committee leadership have said they intend to continue to pursue the Medicare Advantage switch by partnering with a different insurer. A new deal to switch retirees’ health care coverage could allow the fund to access the planned savings before it’s truly threatened with bankruptcy.
The city doesn’t have to repeat the bidding process in order 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 next-highest ranked bidder in the original set of offers.
Adams spokesperson Jonah Allon confirmed that the Adams administration is in discussion with Aetna about a potential Medicare Advantage plan, and Aetna spokesperson Rosemarie Miller said that the company is “interested and in active discussions regarding this opportunity.”
Nespoli said that the Municipal Labor Committee is potentially supportive of the contract being offered to Aetna. “They’re one of the companies that are looking to do it, and we have to just find out,” he said.
But even if Aetna or another vendor is awarded a contract to provide a Medicare Advantage plan to city retirees, it may not save as much money as the city and unions initially hoped, since many retirees have opted out of the Medicare Advantage plan.
The more retirees opt out, the less money the city saves, in part because the move to Medicare Advantage transfers much of the cost of retirees’ care from the city to the federal government.
Over 65,000 retirees had opted out of the Medicare Advantage plan as of April, according to data from the city Office of Labor Relations obtained by New York Focus through a public records request. That’s more than one in five of the city’s 250,000 retired employees.
Under the city’s initial plan, retirees who opted out of Medicare Advantage would have been required to pay $191 a month to maintain their current coverage, which for most retirees is a plan known as Senior Care. That meant that even if retirees opted out of Medicare Advantage, the city would have still saved money by forcing retirees to pay for coverage that they previously got for free.
But in March, state Supreme Court Judge Lyle Frank issued a ruling barring the city from charging retirees who choose to stay enrolled in Senior Care. Without this incentive to switch, it’s likely that even more retirees will choose to opt out of Medicare Advantage, further driving down the amount that the city will save.
“To the extent that they are required to continue offering Senior Care at no cost, the savings won’t fully materialize,” Champeny said.
The Adams administration is currently appealing Frank’s ruling and requesting to be allowed to start charging retirees for Senior Care, with arguments in the case slated for next month.
The unions are hoping that the city wins its appeal, allowing them to proceed with a Medicare Advantage plan and start charging retirees to maintain their current coverage, before the stabilization fund’s cash runs out, Nespoli said.
“We’re still waiting for the court case to come down in September. So everything is really still up in the air right now,” Nespoli said.