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Without cap, administration says health care could run cities $20 billion extra.

Municipal employers will not be given cost protection for health care premiums under the Clinton health care reform proposal due to be introduced this week.

While business have been assured they will pay no more than an amount equal to 7.9 percent of total payroll for health care premiums, that same protective cap will not apply to government employers. Further, there are no plans to address this issue, wihch could amount to a colossal mandate on cities and towns.

By the administration's own projections, this additional mandate could cost local governments $20 billion above and beyond the 7.9 percent level--a burden the administration felt the federal government could not afford to carry.

The health reform proposal will require employers to pay 80 percent of the cost of the regionally determined health premium for their employees and dependents. In order to protect employers from disproportionate costs the plan guarantees employers--except state and local government employers--that their costs for this mandatory premium cost will never exceed an amount equal to 7.9 percent of the employer's payroll.

Administration spokespersons have revealed that the primary reason for not. treating municipal employers the same as all other employers with regard to the cap, is that protecting state and local governments with the cap could cost the federal government $20 billion over five years. Rough estimates produced by the American Federation of State, County and Municipal Employees (AFSCME) indicate that the annual costs of not being protected by the cap could range from $1 billion to $7.8 billion, making their five year estimates $5 billion and $39 billion respectively.

Under the most optimistic assumptions, the ASCME numbers indicate that state and local governments in 27 states (including virtually all the southern states) would be over the cap, while, under the pessimistic scenario, the state and local sector in all states would be over the cap.

While final determinations of whether the health care plan would result in net savings for individual cities and towns cannot be determined until premiums are produced by their regional alliance, the lack of a cap removes the safety net which all other employers will have.

Combined with the push by important business groups to lower the firm size to 500 employees from 5,000 employees, at which they would be allowed to "opt-out" of regional alliances, the cap exclusion could produce a very expensive scenario for state and local governments. Cities would thus be forced into health pools where they would be grouped only with other state and local governments, underfunded Medicaid-eligible individuals and small employers. This scenario could produce a large cost-shift to local taxpayers to subsidize the entire system.

In addition to not being protected by the cap, those cities whose employees are not yet covered by the Medicare tax are proposed to be taxed for this program.
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Author:Petersen, Doug
Publication:Nation's Cities Weekly
Date:Oct 25, 1993
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