De Blasio aide explains contract template
The de Blasio administration is confident the health care deal it recently reached with municipal unions will yield enough savings to pay for salary increases, a key administration aide said, because the formula has worked before.
Bob Linn, the city's chief labor negotiator and architect of the deal with the Municipal Labor Committee—the umbrella union organization that agreed to the construction of the health care deal days after the mayor and the teachers' union announced it in May—once helped orchestrate a similar arrangement with a private sector union, which produced even greater savings than anticipated.
Linn has touted the U.F.T. deal, in which the union agreed to find billions in health care savings to pay for 8 percent back pay and a 10 percent wage increase over seven years.
Though there was, and still remains, some skepticism that labor unions could reduce their health spending by enough to pay for the wage increase, Linn and others inside de Blasio's circle have insisted the savings could be reached, and even believe they could be exceeded.
As a private consultant, Linn helped negotiate a deal with 1199 SEIU that required its 300,000 members, dependents and retirees to make changes in their medical plans that would save enough money to, in part, cover the cost of wage increases.
1199 SEIU is roughly one-third the size of the city's workforce.
“I think the approach was that the parties working together could find solutions to health benefit cost increases that work for both the workers and the employer, and that if they focused on the cost of providing the benefits as opposed to exactly how it could be done, the parties could find good solutions. And I think the experience was they did exactly that, and every year exceeded the targets," Linn told Capital in a phone interview Tuesday morning.
As he worked behind the scenes with the city's workforce, Linn used the 1199 model as proof of success.
"I used it as evidence that this approach could be effective," Linn said.
The 1199 goal was to save $200 million in health care costs between 2009, when the contract was signed, and April 2015, said Mitra Behroozi, executive director of 1199's benefit and pension fund. Through the end of 2013, the union had already saved $214 million and expects to save a total of $350 million by next April. Changes were made to several aspects of member benefits but no one was asked to pay premiums or co-payments for their health insurance.
That's only the latest contract, union officials point out. Since first redesigning their health benefits program in 2004, 1199 has reduced its health spending by approximately $1.7 billion.
Linn worked on the 1199 deal when he was an advisor to Bruce McIver, president of the League of Voluntary Hospitals and Homes, which negotiates with 1199 on behalf of hospitals and nursing homes throughout the state.
The largest savings 1199 realized was from changing the prescription drug plan, and providing its members with a “preferred drug list.”
Coupled with changes like mandatory mail order for long-term medications, the union was able to save more than $160 million over the last four years. Moving members to a Medicare Advantage plan saved another $50 million since 2009.
These are the same steps the M.L.C. is considering and could produce similar results.
Behroozi said she thinks the M.L.C. could have an even easier time than 1199 SEIU had reaching the targeted savings because during the last five years the unions refused to look for savings. There was little incentive to help the Bloomberg administration save money when the former mayor wasn't willing to provide the salary increases and backpay the union wanted.
That may sound crass, but it means there is a lot of low-hanging fruit that should translate into tangible savings.
“If I wanted an easier job, I'd go knock on Bob's door and ask if he needed help,” Behroozi said. “I bet they'll hit their target and more. You can't take to the bank of course, but that's my bet.”
Most of 1199's savings came when they first made changes, which took place between 2004 and 2009. That's the position in which city unions find themselves, which is the basis for Behroozi's and Linn's confidence.
Some fiscal watchdogs are less certain.
Carol Kellermann, president of the Citizens Budget Commission, said the 1199 example is not a fair comparison.
“It is very different from the city in that they actually run their members’ health care directly themselves so they have a great deal more control than you do when your work through insurers,” she said in an email. “Also, it is a smaller number of employees. The total spent by the plan each year is about 1 billion. The city is spending so much more than that; the scale is quite different.”
The C.B.C. has pushed for union members to pay a portion of their salary toward their health insurance. That, Kellermann argues, provides greater long term stability than switching prescription plans or using a preferred network of radiologists.
Behroozi and Linn both noted the success of altering the prescription drug plan for 1199, which he called "one area where there was tremendous savings opportunity."
Linn would not put a price tag on how much he expects the city unions to save by centralizing drug purchases but anticipates it could be a big-ticket item in the city's goal of saving $3.4 billion between Fiscal Years 2015 and 2018 from the M.L.C.
Linn also said 1199 saved money by getting its members to agree to central X-rays and blood work, rather than in doctors' offices.
That may not be so easy to replicate, Kellermann countered.
“Do you really think City unions will agree that their members have to use a central lab and radiologist,” she asked.
Behroozi acknowledged that some 1199 members resisted the changes and said that will be a leadership challenge: to convince members that they are sacrificing a bit of convenience for the luxury of not paying anything for their health insurance.
For example, some 1199 members initially balked at the switch to mail order prescriptions, fearing it wasn't secure or that they'd lose the ability to speak with a pharmacist.
But after a while, most members got used to the change, Behroozi said.
Mail order, preferred drugs, Medicare Advantage are the same changes that are part of a menu of options the city presented to the M.L.C.
The targets the city expects to reach are: $400 million in F.Y. 2015, $700 million next year, $1 billion the following year and $1.3 billion in F.Y. 2018, which is the last year of the city's four-year financial plan.
Linn said he anticipates the $400 million in savings for the current F.Y. 2015 will be identified by January.
"My view is that we, well before January, have identified the savings that get us to the $400 million in the first year," he said.
He demurred from assigning any specific amounts to any potential savings.
But he did note that some of the M.L.C.'s options were not available to 1199, such as ending city payments into what is known as the Health Stabilization Fund. City Hall has been socking away millions each year into the reserve, which is what allowed the de Blasio administration to tap into it to the tune of $1 billion this year cover the health care contracts.