Sullivan administration unveils plan to cut health costs

nherz@adn.comOctober 18, 2013 

The Sullivan administration released plans Friday that it said would save the city money by changing the way it administers health insurance for more than 2,100 of its workers -- currently a $50 million line item in Anchorage's $470 million budget.

The proposal, made public at an Assembly work session at City Hall, would require approval from municipal unions.

The proposal would equalize payments for health costs that currently vary widely between different groups of workers. It would also cut the number of medical plans offered by the city from five to three, and would eliminate a practice that allows workers who opt for cheaper insurance plans to get the money saved by the city's employer contribution to the lower premiums added to their salaries. That currently costs the city $4.5 million a year, Chief Fiscal Officer Lucinda Mahoney said.

Medical costs for municipal workers have grown about 7 percent annually in recent years, according to the city's numbers, and the Sullivan administration wants to limit that rise to the consumer price index for medical care -- a benchmark rate that's calculated by the state. Last year, it rose 4.3 percent.

"Our goal is to establish a fiscally sustainable benefits program that enables us, into the future, to have a budget that can be balanced with the revenues we believe we can generate," Mahoney said.

At the work session, Mahoney said that the city had previously rolled out the plan to union leaders "to communicate where we're going, what our direction is."

Several union officials said that they were not opposed to the idea of streamlining the number of health plans, and were open to changing the structure of their contracts to eliminate the extra payments for workers in cheaper plans.

The unions would likely ask for corresponding increases in their wages, however.

"As long as the total compensation package is roughly the same, you are not going to get a giant fight from labor groups," said Eric Tuott, the secretary for the city firefighters union.

The streamlining of the packages also makes sense, said Jillanne Inglis, vice president of the Anchorage Municipal Employee Association, the city's largest union representing nurses, engineers and others.

Under the Sullivan administration's proposal, 71 percent of workers are already covered under the three plans that would remain after eliminating two others.

But union officials were skeptical that they would be able to reach a deal with the Sullivan administration before the start of open enrollment early next month, which the city had targeted in its presentation at the work session. (Open enrollment is the period when employees can switch between health plans.)

Derek Hsieh, president of Anchorage's police union, said he had received preliminary information about the proposal on Wednesday, and responded with questions to city officials about potential savings. The questions have not yet been answered, Hsieh said.

"You're just getting it to me now, and you have none of the numbers?" Hsieh said, referring to the plans. "Trying to do anything, even the best thing in the world, in that short amount of time is going to be a failure."

Mahoney, in an email, said that the city has an "open door" with the police union and would share details with it upon request. The city will also consider a delay of open enrollment to allow more time for review, she said.

Mahoney said that the city had not calculated the potential savings from its proposal beyond the elimination of the $4.5 million in payments. It expects that the lower number of plans would result in lower costs to administer claims.

Currently, the city's health care contributions vary between unions. Out of the three largest, police and firefighters get more than $2,200 a month, while AMEA employees receive about $1,800.

All those workers have to pay monthly premiums if they choose the lowest-deductible plan: around $70 for police and firefighters, and close to $500 for AMEA members.

But if those employees opt for the highest-deductible plan, which has the lower premium, police and firefighters can get more than $8,400 in extra annual compensation from the city. AMEA employees can make more than $3,300.

Under the new proposal, the city would contribute $1,818 monthly for all employees, beginning next year.

Those who opt for the lowest-deductible plan would have to pay around $100 a month, while for those who choose the highest-deductible option, the city would make monthly contributions of $180 into a health savings account.

Sullivan said in an interview that he wanted health plans to be the same for all municipal workers. He acknowledged that might mean the city would have to offer corresponding concessions when it comes to wages, but he argued those changes would benefit taxpayers.

The extra compensation currently paid to employees in the higher-deductible plans, he said, "is not transparent."

"If you asked anybody on the street, when they look at the compensation for, say, a fireman, and they see the base wage and that sort of stuff -- it doesn't appear there," he said.

Tuott, the firefighters union's secretary, didn't object to the idea. But ultimately, he said that Sullivan's plans would not substantially cut the price of health care -- whether it's shouldered by the city or its employees. That would take more efforts to cut medical costs, like negotiating with providers for cheaper rates, he said.

The firefighters union has its own cost containment committee, but Tuott said its efforts to work with the Sullivan administration had been stymied by turnover at the city's employee relations department.

"It's hard to do that stuff," he said. "We would talk to somebody on the phone, and two months later I'd give them a call back and it was somebody else."

Mahoney, in an email, responded that the city "is continuously focused on reducing the cost of the medical claims."

Reach Nathaniel Herz at or 257-4311.

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