Source: Sherman Publications

Local officials not thrilled with health care contribution cap/limit

by CJ Carnacchio

September 14, 2011

Michigan Gov. Rick Snyder hasn’t signed it into law yet, but some local government officials are expressing opposition to a bill designed to limit the amount public employers could pay toward employee medical benefit plans.

“I think that should be a local decision; it shouldn’t be a mandate from the state,” said Oxford Township Treasurer Joe Ferrari. “I don’t want legislators from outside the Oxford area mandating how Oxford should run. That’s up to the local elected boards, whether it’s the school board, library board, township board, parks and rec. board. It’s up to those folks to figure that out. They’re the ones closest to the budgets.”

Under the bill, approved by the state House and Senate Aug. 24, public employers are given two options regarding how much they pay toward health insurance.

The first is a “hard cap” under which local governing units and school districts cannot pay more than $5,500 per year in health care costs for an individual, $11,000 annually for a couple and $15,000 per year for a family.

The second option allows public employers to pay no more than 80 percent of the total annual costs for all the medical benefit plans it offers or contributes to for its employees. The other 20 percent or more would be paid by the public employees and elected officials who receive medical coverage.

“I’m excited about it. I think it really helps a lot of municipal governments on all levels look at how to control their health care costs,” said state Rep. Brad Jacobsen (R-Oxford), who voted for the bill. “Health care is getting to be a larger and larger percentage of their budgets. It’s getting more difficult to make those payments.”

If Snyder signs this bill, it would take effect Jan. 1, 2012.

“I would expect it will probably be signed within the next 10 days to two weeks,” Jacobsen said. “We have all indications that he is supportive of it and will sign it.”

Townships, villages and cities who fail to comply with the bill’s requirements would face penalties such as losing 10 percent of their Economic Vitality Incentive Program payment – the funding mechanism which has effectively replaced statutory revenue sharing payments from the state.

School districts who fail to comply would lose 10 percent of school aid payments from the state.

The only way a local unit of government could exempt itself from the bill’s requirements for next year, if it’s signed into law, is through a two-thirds vote of its governing body.

In order to extend that exemption to subsequent years, a two-thirds vote of the governing body would be required each year. Jacobsen said the legislature allowed for exemptions because it didn’t wish to bind future governing boards to the decisions of past boards. “It leaves more options open,” he explained. “The thought behind that is the local units of government change so frequently. There’s a turnover of personnel in the leadership roles.”

The idea of paying so much more for their health insurance didn’t set well with some of Oxford’s public employees and officials.

“To turn around and take any employee – I don’t care whether it’s municipal or (private sector) – and give them a 20 percent pay cut like that is huge,” said Oxford Fire Chief Pete Scholz. “You’ve got some families that are barely making it as it is . . . That’s the difference between putting food on the table or gas in the car.”

“From a personal standpoint, it’s always been my position that the less out of pocket, the better it is for me individually,” said Oxford Township Clerk Curtis Wright.

Oxford Township Trustee Mike Spisz doesn’t have a problem with public employees and officials paying at least 20 percent of their health insurance premiums.

“I think that’s fair market,” he said. “The private sector’s around (a) 20 percent average.”

However, Spisz believes health insurance contributions are something that should be increased gradually through “some kind of step program,” not implemented all at once because that would place a “hardship” on township employees.

“Do I think we’re going to have to increase our (employee contributions) over time? Yes,” he said. “Do I think it’s going to go right to 20 percent? I don’t know. Am I a big fan of going right to 20 percent? No, because I think that’s a burden on the employees themselves.”

Jacobsen believes the bill allows public employees to have “more input on what their plan is, how much they’re willing to pay out of their own pockets and as a result, save the units of government some money along the way.”

“Instead of (employees) going to a unit of government saying, ‘Here, we want all of this (health coverage) and it’s going up 20 percent this year,’ now the employee will have more skin in the game and say, ‘Maybe we don’t need to have this (level of) coverage and we can reduce our cost,’” the state representative explained. “Maybe they want to go from a $5 deductible to a $10 deductible or $15 deductible for their prescriptions and such.”

“It adds to cost-savings and more responsible health care expenses, I think,” Jacobsen noted.

Ferrari said this bill is part of the state’s attempt to help communities who are in financial crisis, which is not the case with Oxford.

“I think what (the state’s) trying to do is put a Band-Aid on the situations where they have communities that aren’t making it – your Pontiacs, your Benton Harbors, the places where they’ve had emergency financial managers,” he said. “In those types of situations, desperate times call for desperate measures. We’re not in that spot. You can’t use a one-size-fits-all type of approach.

But Spisz believes the state had to step in given the number of communities that are struggling financially.

“It’s something I think needed to happen in the overall big picture of things,” he said. “If you look at all the other communities around the state of Michigan, a lot of them needed something like this based on their contracts with their unions.”

While it may be needed in some communities to help reduce the cost of government, Wright doesn’t believe the township is one of them.

“I don’t feel it’s necessary in our case,” he said. “When you look at our (2010) audit, we had a $223,000 surplus. It appears that whatever we’ve put in place is working pretty good.”

Right now, the township pays a total of $161,082 annually for medical coverage for 10 employees, which includes the three full-time elected officials, the station manager for Oxford Community Television and the administrative assistant at the Oakland County Sheriff’s substation.

The township’s monthly health insurance rates (which include dental and vision coverage) are $574 for an individual, $1,377 for a couple and $1,721 for family coverage.

Each employee currently pays 2.5 percent of their health care cost. Their contributions equal a combined $4,027 for the year.

In January 2012, the employee contribution is scheduled to increase to 5 percent.

“We’ve established a plan here that has been working for the employees and the full-time elected officials. It’s been voted on and approved (by the township board),” Wright noted.

Unlike the township, the Oxford Fire Department wouldn’t be immediately impacted by the bill because it has a union contract in place that doesn’t expire until Dec. 31, 2012.

The bill’s requirements don’t apply to employees covered under current collective bargaining agreements until the contracts expire. Any contract extensions, renewals or new contracts executed on or after Sept. 15, 2011 must comply with either the bill’s “hard cap” or 80/20 provisions.

Right now, the Oxford Fire Department is pretty much on par with the township in terms of health care.

Full-time fire employees, per their union contract, also pay 2.5 percent of their health care costs and will see their contribution increase to 5 percent in January 2012.

Health insurance for 11 fire employees costs a total of $183,549 annually, of which the employees contribute a combined $4,589.

On a monthly basis, medical coverage for the fire department costs $579 for an individual, $1,391 for a couple and $1,738 for family coverage.

The Village of Oxford pays more for its health insurance than either the township or fire department as it insures more employees. The municipality spends $204,730 annually to provide 15 employees – 12 of which are police and DPW personnel under union contracts – with medical coverage.

Of that total, the employees contribute a combined $5,700. The village manager contributes $1,500 per year, while the other employees pay $300 annually.

On a monthly basis, medical coverage for the village costs $586 for an individual, $1,243 for a couple and $1,292 for a family.

Of all the local government entities in Oxford, it’s the school district that could realize the most significant savings under an 80/20 health care cost split because it has the largest number of employees. This year the school district has a total of 514 employees on its payroll, of which 319 are currently receiving some type of health insurance benefits.

Last year, the district spent approximately $4.75 million in health insurance premiums.

“We’re talking, in a calendar year, a reduction based on (last year’s health insurance premium costs) of close to $1 million in cost for the district,” said Tim Loock, assistant superintendent for business and operations.

There’s lots of things the district could do with an extra $1 million in its budget such as increasing staff.

“We could hire 12 teachers with that savings to provide instruction, as an example,” Loock said. “A new teacher hired in with benefits is probably $65,000 to $70,000, so it’s going to equate to a dozen or so teaching positions.”

Loock noted the $4.75 million health care figure is not minus employee contributions, which vary according to the contracts with the various collective bargaining units.

“It would be somewhat less than that. I can’t give you a number,” he said. “But it’s not going to be a huge number in terms of last year.”

“Last year . . . there were just a handful of employees that were participating in any kind of health care premium sharing,” Loock explained. “This year, there’s language in the teacher’s contract that would kick in.”

When his opinion of the bill, Loock replied, “I think it’s certainly a reflection of public employees being brought to the standard that private industry has been experiencing for a number of years where employees pay a great share of their health insurance coverage. From a cost-reduction standpoint on the part of schools, it’s going to certainly help manage our budgets with great employee share of a rather expensive benefit.”