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Cash-strapped Governments Turning Own Workers Into Public Health Consumers

Employees go on health assistance as states and cities raise worker contribution levels and switch jobs to part-time status.

April 28, 2006
Related Topics: Health and Wellness, Compensation
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While state lawmakers target private employers for not providing health care coverage, a similar issue may be brewing in many of their own back yards.

In addition to being taxed by having to provide public health assistance to a growing number of working poor, government budgets are also being squeezed by their own employees’ escalating health care costs, forcing them to shift more of the expense onto those employees. Those employees, in some cases, then turn to public health programs.

   For example, while Canton, Massachusetts-based Dunkin’ Donuts may be No. 1 on the Massachusetts Executive Office of Health and Human Services’ list of employers with 50 or more employees using public health assistance, the city of Boston is not far behind, ranking sixth on the list. In Texas, 15 of the 20 employers named in the state’s Health and Human Services Commission report of employers identified by individuals enrolling in the Children’s Health Insurance Program were public employers, mostly school districts.

   How can it be that public employers, which once made up for paying low wages by offering comprehensive benefits, are now beginning to contribute to the nation’s uninsured working population?

   It’s the same reason states are seeking reimbursement from private employers to help shore up their overtaxed Medicaid systems, observers say. Strapped for cash, many states are reducing their own employees’ access to health benefits by relegating them to part-time or temporary status, or increasing their contributions to a point where they sometimes become unaffordable.

   In July, Ohio increased state employee health plan contributions to 15 percent of premiums from 10 percent because "the state, like many other states, had significant concerns about the state budget," according to Nan Neff, benefits administrator in Columbus. With the increase, the employee contribution for single coverage is now $47.30 a month and $128.91 for family coverage, she says.

   While Ohio offers health benefits to part-time employees, their contributions are based on the number of hours worked, so those part-time employees who work fewer hours pay more for their health care, Neff says.

   About 5,000 of the state’s 60,000 workers are not eligible for coverage because they are either seasonal or temporary workers—a growing phenomenon in the public sector, experts say.

Permatemp proliferation
   "Permatemps—people without health insurance—are almost as big a problem in the public sector as the private sector," says David West, executive director of the Center for a Changing Workforce, a nonprofit research organization in Seattle that focuses on issues affecting low-wage and nonstandard workers. "In the last 10 years, the public-sector strategy has been to reduce the number of employees eligible for insurance."

   He says that the center’s analysis of 2004 Medicaid enrollment found that up to 10 percent of Washington state’s 160,000 employees were receiving government health assistance.

   "I’m sure every state and local government has people on Medicaid," West says.

   Because many government budgets provide for a specific number of full-time positions, public entities often hire temporary, seasonal, part-time or other types of contract workers who usually are not eligible to participate in benefit plans, according to Rick Johnson, senior vice president and national public-sector health practice leader for the Segal Co. in Washington, D.C.

   Dennis DiMarzio, COO for the city of Boston, attributed that city’s appearance on the Massachusetts list to part-timers, "school crossing guards and things like that."

   Because, in his opinion, the city’s benefit package is reasonably priced—$45.12 a month for individual coverage and $121.32 a month for family coverage—DiMarzio says that any eligible employee who isn’t enrolled is "irresponsible."

   "Even if you’re making $30,000 a year—that’s $600 a week—to not spend essentially $10 a week to get yourself coverage, outstanding coverage, to me is individual irresponsibility," he says.

   He acknowledged, however, that it might be difficult to afford family coverage on that income.

   According to the Massachusetts list, 1,110 city of Boston employees were receiving public health assistance. The city has 17,000 active employees and about 12,000 retired employees enrolled in its health plan, according to DiMarzio.

   "I’m not surprised there are folks who can’t make it on public salaries," because "there’s always a tug of war between pay raises and benefits," Segal’s Johnson says. "There’s only so much tax money. They can’t raise prices like private employers—that would be called raising taxes.’’

   In general, public-sector employees "are probably over-benefited and underpaid, and some of that reflects the thinking of our members. They really value their benefits," says Steve Kreisberg, head of collective bargaining at the American Federation of State, County and Municipal Employees in Washington, D.C., which represents about half of the nation’s public employees.

   "So when we negotiate, the members say in a very clear voice, ‘Look, if I have to sacrifice wages, I will, but hold on to my health benefits,’ "he says. "But we’re not increasing their standards of living as much as we should because health benefits are eating up an increasing share of their income.’’

   For example, New York City employees earn an average of just $28,000, which would make any kind of contribution difficult, according to Kreisberg.

   "That’s about rent if you’re going to live in a lot of neighborhoods in New York City," he says.

Subsidized workers
   While AFSCME doesn’t track the number of public employees without health care coverage, it is looking into the uninsured program among a growing number of employees, such as home health and child care workers, who are not on public payrolls but whose wages are financed by government programs.

   These individuals are "paid with Medicaid money, but they have no health benefits," Kreisberg says. "There are also child care workers who are getting subsidies from public programs. In the ’80s there might have been a state agency created to employ them and provide benefits, but not today.’’

   "The fact is, I don’t know of a single government that is so rich and fat and happy that it can keep up with the increased cost in employee health care," says Darrell E. Wells, director of risk management for the city of Odessa, Texas, and chairman of the board of trustees of the Family Health Benefits Pool that provides coverage to city employees.

   "Eventually the pain level rises to the point where even government has to act," he says.

   While Odessa is still offering benefits to employees at almost no cost—individual coverage is free and employees with two or more dependents pay just $27.85 a month—other Texas communities aren’t, Wells says.

   As an example, he described the recent experience of a police officer who left Odessa to take a job as the police chief in another town.

   "He called me on my cell phone after he was offered the job to say he had gotten his health insurance information and that something was terribly wrong," Wells recounted.

   While the town offered to pay 100 percent of the cost of his individual coverage, he would be required to pay more than $370 per pay period for employee-plus-family coverage.

   "It was almost $10,000 for the same thing he was getting for a little over $300 a year here," Wells says. "He asked me, ‘They pay pretty good around here in this little town. But they’ve got garbage truck drivers and low-level people—can they afford to spend $10,000 a year to insure their families?’ I said that’s the point. This city is sending a message. The message is, ‘We’ll insure our employees, but we don’t want your spouses and children.’

   "The fact is, we’re starting to see government reject the idea that we have to provide the best benefits in town," Wells says.

   When Kip Wall, former CEO of the Office of Benefits for the state of Louisiana, discovered that about 9 percent of the state’s workers could not afford to participate in the government’s health plan, he tried to create a low-cost plan that would have provided at least basic benefits.

   "We have a material percentage of state employees making under $25,000 a year," says Wall, who now practices law in Baton Rouge.

   Unfortunately, "we never could put together a plan of sufficient value to the employees to make it worth their while to invest in the product, and so it never did get off the ground," Wall says.

   "There are still some public employer plans out there to die for ... but comparable to what they were five years ago, they’re not common anymore. The very rich plans are the exception," he says.

This story originally appeared in Business Insurance, a sister publication to Workforce Management.

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