State of the City: The Case of Healthcare

In advance of our annual State of the Cities report, which will be released later this year, this blog series captures speeches given by mayors in 2017. This blog is part three of a four-part series focused on mayoral dialogues and sentiments around the fiscal responsibility of the city and the retirement needs of the workforce.

Over the past few years, mayors have been paying more attention to health-related issues — putting it at #7 in the top 10 issues of mayors’ priorities.

Of particular focus have been opioid addiction and substance abuse, in keeping with the national dialogue.

From 2015 to 2017, our State of the Cities reports showed that mayors have refocused their attention from the Affordable Care Act and hospital renovation to a culture of health and access to healthcare. Among the 120 speeches that we studied in 2017, 13 percent discussed hospitals and clinics, 8 percent discussed healthy lifestyles and 7 percent discussed access to healthcare.

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Access to healthcare is playing a growing role in talent attraction and retention. A recent study conducted among 2,000 workers suggests that 88% of job seekers would consider choosing a lower-paying job with better health insurance than a high-paying job. So, it is no wonder that despite being one of the most expensive employee benefits, healthcare is offered to nearly 90 percent of all active local government workers, making it a primary component of the employee benefits package.

But to what extent are mayors talking about it?

Certainly, not many mayors are talking about retiree healthcare, considered the most significant other post-employment benefit (OPEB) offered to a state or local government employee as part of his or her retirement benefits package – and this is because some small cities simply do not offer it (only about 40 percent of local governments with fewer than 250 employees offer health insurance to retirees under age 65 and approximately 30 percent offer the benefit to those over age 65), and of the medium- to large-sized cities that do (as we can tell from the graph, many larger cities do, in fact, offer retiree healthcare), funding has been largely inadequate.

Unlike pensions, most employers who sponsor their own OPEB plans have not been setting aside assets in a trust to fund these benefits. In fact, the unfunded liabilities for retiree healthcare for the 30 largest US cities alone exceeds $100bn.

anita-graph-health.pngWhile cities like Corpus Christi, Texas, have committed to providing better healthcare benefits for the purposes of talent attraction and retention, many mayors have expressed their concerns over growing healthcare costs. Jay Gillian, Mayor of Ocean City, New Jersey, discussed in his annual speech that the $1.1 million increase in health insurance costs was out of his control.

Similarly, Steve Williams, Mayor of Huntington, West Virginia, said, “As we have sought to control our operational costs during the past four years, the one area in the budget that we have found most difficult to control is our health benefit system.” He added, “forty five cents out of every dollar are used to pay pensions and healthcare benefits.” The mayor pledged to maintain the current tax level but also believed that creating new revenue streaming is necessary to balance the city budget.

Clearly, many mayors are struggling to manage and eager to maintain their healthcare payments. And some mayors are deliberately focusing their attention on retirees. As with pensions, some mayors have adopted the renegotiation approach with unions to settle for an affordable healthcare payment. For example, Huntington, West Virginia, created a Healthcare Task Force in 2016 and launched contract negotiations with its three labor unions to discuss changes to health benefits. The city has successfully reduced the premiums for senior retirees from nearly $317 per month to just over $217 per month.

Those changes, aiming to adopt a private-industry-employer type of plan, would adjust the co-pays and deductibles for active employees and all pre-Medicare retirees to the same level. In addition, the proposal raised the deductibles for both the single and family plan. As the city was working to reduce the more than $2 million deficit, this new healthcare plan was estimated to save the city $1.6 million annually. “Our healthcare costs are being reduced by 20 percent in this proposed budget,” said the mayor.

In Milwaukee, Wisconsin, the city proposed and passed an ordinance that eliminated retiree health benefits for city employees hired on or after January 1, 2017, with the exception of some public safety employees. Retiree healthcare expenditures made up approximately 30% of the city’s annual expenditures. Additionally, the city noted that early retiree healthcare premium rates increased by 27 percent in the last 6 years while the premium rates for current employees stayed flat.

As a result, the city proposed to eliminate health benefits for retirees. The decision was based on a change made within the public school system, in which new employees hired by Milwaukee Public Schools after June 2013 are not eligible for retiree health insurance. However, it is worth noting these changes would not realize expenditure savings for 15-30 years, as mentioned in the city official’s letter to the city council.

As city leaders have realized that cutting healthcare costs directly by reducing benefits is neither an easy task nor a popular idea among voters, many mayors have opted for more cost-effective measures like preventative healthcare services. As a result, wellness programs and healthy living initiatives have become more popular among mayors, since they tend to require a moderate, sometimes zero, level of financial input but could result in notable reductions in healthcare costs in the long run.

anita-photo.pngAbout the Authors: Anita Yadavalli is program director for city fiscal policy in NLC’s Center for City Solutions.

headshot.jpgYang You is the research intern for NLC’s Center for City Solutions. He supports the Center’s research priorities, with an emphasis on the annual State of the Cities and City Fiscal Conditions reports and Mayors Institute on Preemption. Yang holds a Bachelor of Arts in Political Science and a Bachelor of Science in Supply Chain and Operations Management from the University of Minnesota.