Published: November 20, 2009 02:26 am      

CITY OF LOCKPORT: City aims to cut health costs by $700K

The city is aiming to cut its health care costs by shifting retirees into less expensive health insurance plans.

The decision, tentative for the past year and a half as Mayor Michael Tucker worked to gain consent of the city’s five employee unions, is final now, Tucker said this week.

Health care cost-cutting talks preceded renegotiation of employment contracts, all of which expired in December 2007, and took up the bulk of negotiation time since mid-2008, Tucker said.

So far, only three unions have consented — the police union, the department heads union and AFSCME Local 822 — but together they represent more than half of all city employees, so Tucker has ordered all retirees’ health insurance plans be shifted in 2010.

“We’re not waiting any more for everybody to agree, the savings we’re losing out on is too huge. We’re pulling the trigger,” he said.

The city fully funds health insurance for 152 retired employees, at a cost of $1.5 million this year. As per past union agreements, retirees are entitled to lifetime city-paid, full health coverage, even after they reach age 65 and begin receiving Medicare benefits. When they do, their city-paid policies become supplemental/secondary to Medicare, covering costs that Medicare won’t.

Currently, the city has concluded it is paying considerably more for some retiree policies than it needs to: Once the city-paid policy becomes secondary, it’s downright wasteful spending, compared with the cost of equivalent policies being offered by the city’s carrier, Blue Cross Blue Shield, the city said.

According to Budget Director Richard Mullaney, 140 retirees take a plan that costs $6,100 a year for single coverage and $17,300 a year for family coverage. It’s a Cadillac plan because it’s “portable,” meaning it’s good no matter where retirees live — although most retirees live in Western New York and don’t require portable coverage.

There’s a “boatload” of savings to be gained from shifting retirees to health plans based on their age, marital status and residence, Mullaney said. Current projections show the savings approaches $700,000 a year — nearly half the current tab.

The replacement plans offer the same or better coverage than existing plans, Mullaney said; retirees younger than age 65 can simply be shifted to the less-expensive single or family plans offered to active city employees. Portable plans will be purchased for non-local retirees only.

The most savings will be gained from replacing the Cadillac policies of retirees over age 65. Currently, they cost $1 million a year. Blue Cross Blue Shield is offering Medicare B policies with the same coverage/benefits for about $575,000 a year.

A Medicare Advantage single plan costs $3,450 a year instead of $6,100. Two single plans for a retiree and his/her spouse, cost $6,900, versus the $17,000 Cadillac family plan. Spouses who are not Medicare-eligible will be covered by the same under-65 single plans that active employees get.

There’s a risk retirees can band together and sue the city for changing their health plans, but in meetings with some retirees to explain the changes, Mullaney said the prospect of equivalent coverage at lower cost “has been quite well-received. ... If every retiree examined their conscience, they’d know it’s right for them and the city.”

Getting all five city employee unions to agree hasn’t been as easy, according to Tucker and Mullaney. After 18 months of occasional talks, the firefighters union and the local unit of CSEA still aren’t on board.

The city technically has always had the power to shift retirees into less expensive insurance plans without the unions’ consent, since the unions don’t represent retirees, but up to now, management sought their consent for two reasons: Labor “peace” and its linkage of employee raises to savings in health expenses.

Tucker said the city isn’t awarding raises to any employees, except department heads, for the year 2008 because no health savings were effected in 2008.

It’s possible for disagreeing unions to reject that stance and seek mediation of their expired contracts. Management wanted all unions’ consent on the retiree insurance shift to avoid mediators finding the cuts-for-raises condition had a “chilling effect” on contract negotiations, Mullaney said.

At this point, Tucker said, he’s decided to exercise the city’s prerogative and move all retirees — including former firefighters and CSEA members — into cheaper insurance plans. The longer it waits, the more money it’s wasting, he said.