In what city officials say is a first for a New England municipality, the city of Cranston and Teamsters Local 251, which represents 160 mostly white-collar workers, have agreed to a new contract that includes an HSA-eligible health plan as one of two coverage options.
The three-year pact gives workers a choice between a traditional PPO plan with a 10-percent premium co-share ($1,267 for a family plan in 2006) rising to 20 percent by the third year, or an HSA-eligible plan with a $2,000 individual or $4,000 family deductible.
Rhode Island's Market Has Changed. Developers, Builders, Investors and Sellers Must Change With It.
By Emilio DiSpirito IV License Partner | Engel & Völkers Oceanside Leader | The DiSpirito…
Learn More
To further entice workers to switch, the HSA plans don’t require a co-share, and the city will deposit amounts equal to half the deductible each year, plus a $100 bonus in the first year. By the third year, the co-share on the PPO could be 68 percent higher than the HSA deductible.
“This contract represents a fundamental shift in municipal government,” Cranston Mayor Stephen P. Laffey said in a statement. “For many years, excessive benefits have strangled communities. Under this contract, people are compensated fairly for their work, but have an ownership level of their health care costs that is more on par with the private sector.”
In fact, Rhode Island workers pay, on average, 29 percent of individual premiums and 42 percent of family premiums, according to a recent state study. HSAs, on the other hand, aren’t available to most Rhode Islanders. Until this summer, a state law made plans that met the U.S. Treasury’s HSA specifications illegal here, and even after the law was changed, many employers said they weren’t ready to experiment with the new plans.
Health savings accounts are tax-favored accounts that can be used to pay for health costs – even some services not covered by regular insurance. To qualify for an HSA, workers must be enrolled in a health plan with a deductible of at least $1,050 in 2006 ($2,100 for family plans) that applies to everything but preventive care, as defined by the Treasury.
Nationally, HSA enrollment has grown rapidly since the plans were first offered in 2004, more than doubling from September 2004 to last May, when it surpassed 1 million. Enrollment is expected to hit 2 million this month, according to health market analyst Corporate Research Group Inc.
The Northeast, however, has been slower to embrace HSAs. A United Benefit Advisors report this summer found only 1.3 percent of employers offered consumer-driven health plans, which include HSA-eligible plans, compared with 2.6 percent of employers nationwide.
Kevin Walsh, a consultant from Group Benefits Strategies, in Auburn, Mass., who helped Cranston develop its new health plans, said his firm serves about 200 cities, towns and school districts across New England, and Cranston is the first to offer HSAs.
“I give Cranston a lot of credit,” he said, noting that it is “very challenging to try to control the cost of health insurance,” especially in a unionized municipal setting.
Under Laffey, Cranston has had a rocky relationship with its employee unions. But in this case, Director of Administration Paul G. Grimes said, city officials and the Teamsters worked together to find a compromise that would serve them both well.
Steven M. Labrie, business manager for the union, said he came to see the new plans as “another vehicle” for his members, especially appealing to the young and healthy.
But there’s no question – for union members whose median income is $34,000 a year, according to Laffey, it will pay to be healthy. If annual 15-percent cost increases continue, Grimes said, by year three of the contract, the family premium co-share for a traditional PPO will be $3,352.
To give everyone a head start, the city is giving all union members a $1,820 raise ($1 per hour), effective retroactively to July 1, along with the premium co-shares and all contract terms except the HSA option. Still, even with 3-percent annual raises, the co-shares are meant to feel expensive, so workers will be inclined to switch to the HSA plans.
And with HSAs, the incentive to be frugal with health care dollars is even greater: It is workers’ own money that they can save, or spend. (After the deductibles are met, the city will cover 100 percent of workers’ health costs, up to the same caps as in the PPO.)
“They [now] have skin in the game, and when people have skin in the game, they’re going to take more ownership,” Grimes said. Sure, some workers will still exceed their deductibles, he said, but most won’t. The city expects to save 15 to 20 percent per year on the HSA plan, even with its annual contributions to the workers’ accounts.
Both plans will be administered by UnitedHealthcare of New England.
The city is still negotiating with other unions – the Laborers, who represent about 80 public works employees – as well as the police and firefighters’ unions, and Grimes said the provisions of the new contract will play into the discussions.
