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Municipal employers may have predictable costs, fewer choices under Clinton health proposal.

Under the Clinton health care proposal municipal employers may gain more predictable and tightly controlled health care costs but would exchange this for a reduction in the ability to negotiate health coverage and the loss of employer choice over the health plan to offer to employees.

Highlights

Cities would be responsible for paying 80 percent of a regionally determined premium, the alliance premium, to help finance the health care of its employees and their dependents, unless the city was eligible for a small-employer subsidy or unless the city negotiated with its employees to pay a higher percentage. While many cities currently pick-up 80 percent or more of health premiums for their employees they frequently pay nothing or pay lower percentages of the health costs for dependents.

Many cities do not currently pay health care costs for part-time employees but under the proposal cities would be required to pay a minimum of 80 percent of the alliance premium for part-time employees, prorated on the basis of a 30 hour work week.

Section 125 plans, flexible benefit plans, which a number of cities offer to their employees and which allow municipal employees to pay health costs not included within the city- offered health plan, in pre-federal-tax dollars, would be eliminated. Such plans would remain in effect for expenses related to child care and other dependent care.

The plan also proposes a new program for early retirees which might have particular applicability to cities because: (1) cities employ many public safety employees that are eligible for full-pensions prior to age 65 and (2) cities are forced by budget pressures to run "early-out" - reduction in force programs. Under this proposal employees who retire before age 65 and were employed for the amount of time used to establish Social Security eligibility would be required to pay only 20 percent of their health alliance premium with the federal government picking up the balance. Cities would have to look to contractual agreements to evaluate the relief which could be obtained through this program. If a city could avail themselves of this provision and are responsible for retiree health costs they would only have to pay the 20 percent share.

Two Types of Premiums

A key to understanding the proposal is that there are two types of premiums and no direct relationship between the two.

The first type is the "alliance premium" which is the amount paid to a new type of regional body which will be established by states under federal guidelines. Alliances can cover a whole state or part of a state but their boundaries must be drawn in a non-discriminatory manner. States may also choose not to establish alliances but instead set up a single-payer plan. The alliances may be set up as not-for-profit corporation, and independent state agency or a state executive branch department.

The second type is a "health plan premium" which is paid out by the regional alliance to health plan providers based on choices made by consumers from among health plan options.

How Would it Look to a City

Annually the regional alliance in which the city is included would announce the per-worker payment which the city would be required to pay based on its employment, the base alliance premium for employers. Under the plan cities would not have the option to set-up corporate alliances, a choice which is allowed for: non-governmental employers of more than 5,000 employees; rural telephone and electric co-op health plans covering more than 5,000 workers; and Taft-Hartley labor union plans.

There would be four levels of this premium based on the family status of the employee: (1) single individual, (2) couple without children, (3) single parent family and (4) two-parent family. These four base-premiums amounts would be computed to adjust for the rate of multiple earner households within the alliance, so that employers within the alliance, as a group, are not overpaying because of multiple earner households.

Based upon a declaration by each employee of household status the city would pay a minimum of the base employer alliance premium (80 percent of the alliance premium for the employee's household type). The employee would be responsible for paying the balance of the alliance premium, probably by payroll deduction. The city could elect to pay more than the required 80 percent of the alliance premium. Cities can expect considerable pressure by employee groups to assume more than the 80 percent cost share.

The maximum cost of alliance premiums required by federal law, for all employers, including apparently, municipal employers, with 50 or more employees is set at 7.9 percent of payroll. For small municipal employers (those with less than 50 employees) the contribution would be capped at lower levels based on the average wage of a full-time equivalent municipal employee. For those communities whose municipal wage cost averages $12,000 or less the cap will be 3.5 percent. There is then a graduated scale until the average annual wage level exceeds $24,000 at which point the cap is 7.9 percent for small municipal employers, as it is for all large municipal employers.

For some cities there may be potential savings because their current plans may cost more than the "alliance premiums", which will be uniform over large market areas and cover thousands, if not millions of individuals. For other communities the mandated "alliance premium" may exceed current costs, because the city belongs to a group with good experience, because dependents are not covered, because part-time employees are not covered or because the package of benefits currently provided is narrower than that proposed in the reform plan's package.

Health benefits provided by a city which exceed the federally required uniform comprehensive benefits plan if offered as of January 1, 1993 will continue to be non-taxable to the employee for ten years after enactment of the national plan. To administer this provision all employers, including municipal employers would be required to register benefit plans with the US Labor Department by December 31, 1994. Annually cities would list on employee W-2 forms the amounts of tax-exempt and taxable contributions for health coverage.

Timing

Since many components of this plan will be fleshed out by state governments within each state the plan assumes that some states would have their plan operational by January 1995, others by January 1996 with all states required to be on-board by January 1, 1997.

City employees would be able to choose annually among a list of certified health plans for their coverage. There is no particular role for the city government in the process but city personnel departments will certainly be expected to provide employee workshops and distribute literature regarding the cost sharing arrangement and consumer evaluations of all qualified plans being offered through the local alliance.

If their state government elected to create a shoe payer plan, an option for states under the proposal, no particular choices would be required by the employee. If their state elected to create a health alliance(s) then the employee would have the choice of three plan types. Choices among the three basic plan types and among the various providers will be influenced by individual preference, and a trade-off between (a) degree of choice desired and (b) the level of and type of exposure to out- of-pocket costs.
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Author:Peterson, Doug
Publication:Nation's Cities Weekly
Date:Oct 4, 1993
Words:1214
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