By Tom Ferrick

(part 4 of 5)

There is a simple way for the city to save a lot of money on its health insurance costs, which total about $400 million a year.

Each of the city’s major unions, plus its non-unionized work force, have separate health and welfare funds. If you combined them into one fund and hired a cost-conscious manager to oversee them, you would save money - if for no other reason that a health fund that big would have bargaining power with insurance and drug providers.

A single office and a single fund would also be more efficient. Right now, each union runs its own operation. Eliminate those redundant administrative costs and you’d save there as well..

It’s a simple solution, but anything but easy.

Ever since Mayor Frank Rizzo bargained away the city’s control over health insurance in the 1970’s, the unions have jealously guarded the right to run their own funds. It’s a tough double play for the city: have no direct say over how money’s spent, but pay the bills anyway.

The funds control millions of dollars, making them important entities within the unions and sometimes a source of patronage jobs and contracts. In the 1980’s, Earl Stout, then head of District Council 33, used the DC33-owned hospital as a private hiring hall for friends and relatives.

If the city can’t save money by creating a single Health & Welfare fund, it could take a path quite familiar to employees of private companies: Ask city employees to begin contributing to the cost of their health insurance. Yes, that’s right, this standard practice in the private sector is still not common among city workers. Of the four major unions, only one - District Council 47, which represents white-collar city workers - has its members help pay for premiums. It amounts to about $40 per family per month.

Study after study has shown that when people bear some of the cost of health care, they are more careful in their choices. To avoid high premium co-pays they may look for a less-expensive HMO or be sure they pick generic drugs or cut down on well doctor visits.

It costs the city anywhere from $11,700 a year per employee for health care (for blue-collar workers) to $17,300 per employee (for fire fighters).

The average overall is $13,030 and this is much higher than other local and state governments in the region, where the average of $9,082, according to a recent study by the Pew Charitable Trusts and the Economy League of Greater Philadelphia.

If you require city employees to pay for 5 percent of their health costs you would - for the first time - link cost to usage. You would also generate cash to help defray health insurance costs.
It’s not much, but it is a start.

It’s also not an onerous burden on the employees. For a fire fighter with a $17,328 a year plan, it would amount to a co-pay of $17 a week or about $860 a year.

Of course, the cost of the co-pay would rise as the cost of the health insurance rose, which gives the operators of the plans more incentive to keep costs contained.

Down the road, they may even agree to combine their plans into a single fund to maximize savings.
The city would have to negotiate this co-pay at the bargaining table this year. Since the police and fire fighters get their contracts through arbitration, it would have to convince the arbitrator to go along.
A 5 percent employee co-pay on health insurance premiums would generate about $20 million a year, if all classes of city employees contributed.

Potential savings over 5 years: $100 million.

Tomorrow: Option 4