The city partnership with its employees underlies the successful redesign of the employees health insurance program, expanding benefits while reducing costs. Editor's note: Each year the Government Finance Officers Association awards its prestigious Award for Excellence to recognize outstanding contributions in the field of government finance. The awards stress practical, documented work that offers leadership to the profession and promotes improved public finance. This article describes the 1993 winning entry in the pensions and benefits category. Imagine a health plan that expands employee benefits and lowers employer costs. Imagine a health plan that increases employees' payroll deductions yet is supported enthusiastically by the employees' labor unions. Imagine that the success of this plan does not require a major role by any of the state's three largest health care providers.
No, it is not the Clinton health plan. It is the health plan offered by the City of Medford, Massachusetts, to its more than 2,500 employees, retirees and dependents. The plan was the product of labor-management cooperation: For two years, city officials met with representatives of 15 unions and retirees to hammer out a plan that responded to the concerns of both parties. The product was a landmark agreement that cut the city's health insurance budget and expanded health benefits. It brought stability and predictability to a notoriously controversial and unpredictable budget item.
The recipe for success was simple, although its execution was slow. Employees conceded early on that they would contribute more toward health care if the city would expand prescription coverage and add a dental plan, but it took dozens of meetings for employees to learn the nuances of the health care system and understand the strengths and weaknesses of available health plans. After two years, Medford and its employees agreed that health coverage must be consolidated under one plan so the city could regain its clout in the health care marketplace.
Now, two years into the plan, it enjoys the wide support of employees and retirees, and the city's health insurance budget is less than it was five years ago. In addition, the data management and cost control capabilities of the city's health insurance provider allow Medford to predict and monitor health costs and utilization. Medford also benefits directly from cost containment strategies developed by the provider.
Medford's success begs the question: Can other public employers achieve the same results? In most cases the answer is "yes" because the principles that Medford applied can be used by most public employers across the country. The process is easier for large jurisdictions or districts located near metropolitan areas, but smaller and rural public employers can be successful as well by joining forces with other employers, either public or private, and working closely with health plans, doctors and hospitals.
The key is gaining clout in the marketplace, which can open the door to important financial and health care data and, ultimately, lower cost health care. That will permit the evaluation of costs and results of medical care, as well as hold providers accountable for the results.
Health Care Problems
For Medford, the depth of its health insurance problems were clearly evident in 1990. They were far reaching and very similar to the problems faced by many public employers today--rapidly rising health costs, split risk pools, limited provider cost controls, and sketchy doctor and hospital utilization data. Rising Costs. From FY86 to FY90 the city's health insurance expenses nearly doubled from $2.6 million to $5.1 million.
Split Risk Pools. In January 1990, the city's employees were unevenly divided among health care providers. The plans were as follows:
* Blue Cross Blue Shield, a self-insured freedom-of-choice plan with 169 city enrollees (13 …