July 11, 2000           PRESS RELEASE

Baltimore Efficiency & Economy Foundation Reports on Soaring City Employee/Retiree Health Care Benefit Costs
Identifies Potential for $30,000,000 in Annual Savings
Report Calls for City/Union Partnerships to Plan for Employees and Retirees to Share More in Health Benefit Costs

Baltimore, MD – A Baltimore Efficiency & Economy Foundations (BEEF) "Report on the City of Baltimore Healthcare and Compensation Practices" released today concludes that the City can reduce its annual health benefit and prescription drug costs by $30,000,000 without changing the excellent level of benefits it provides to its employees and retirees. The Report is an analysis of the City’s costs of providing health care benefits and prescription drugs to its 16,000 full-time employees and 19,000 retirees. Copies of the Report are available from BEEF and may be found on its web site: www.beefbaltimore.org.
          Grants from the Goldseker Foundation and the City of Baltimore funded the study which was directed by Ross Coffey of the Baltimore health benefits consulting firm of Bolton Offutt Donovan.
          The Report states that the City’s cost for providing the benefits is higher than it should be, in large part, because employees and retirees do not share, proportionately, enough of the costs. Additionally, it recommends phasing out the indemnity plan and states that its PPO health plan is not controlling costs to the extent achievable by other public sector employers. It calls upon the City and the collective bargaining units to work together to initiate fundamental changes that will protect the viability of the benefits without altering the level of coverage.
          Further, the Report calls for City retirees to make scaled contributions to the cost of their health benefits based on the number of years of employment. Benefits to, and cost sharing with, the City’s.
          19,000 retirees are not controlled by collective bargaining agreements. Retirees with only ten years of City employment are eligible to receive essentially free health care and prescription drug benefits for the rest of their lives. The present pool of 19,000 retirees is expected to increase substantially in the upcoming years.
          George A. Nilson, President of the Baltimore Efficiency & Economy Foundation, stated: "The Board of Directors of BEEF is very pleased with the analysis, findings and recommendations contained in this Report and that they will not adversely impact the quality of health coverage for employees and retirees. We hope that the City will take immediate steps to create a timetable for implementation of the many recommendations."
          The study was precipitated by the past and current Administrations’ concern for the spiraling growth in health benefit costs. In the FY2001 City budget, the City’s costs to provide benefits to employees are projected to increase by 9.2%, benefits to retirees by 10.1% and prescription drug costs for both groups, 15.8%. The total expense is expected to reach $158.3 million for non-school employees with $52 million allocated for prescription drugs alone.
          "The City is obviously under a lot of financial stress just now. We believe it’s a valuable service if we can help provide an objective look at ways the City can save money and redeploy funds it does have to other pressing needs, like reducing crime and rebuilding neighborhoods," said Timothy D. Armbruster, Goldseker Foundation President.
          Additional Report recommendations:

• Eliminate the indemnity health plan;
• Evolve the PPO plan into a more managed Point of Service plan;
• Bring retiree cost sharing in line with demonstrated best practices;
• Introduce a PPO office co-pay of $5;
• Introduce drug plan cost sharing changes;
• Reduce the number of plans offered from the current nine;
• Address the issue of high dependent participation by providing incentives to working couples to select an alternative to the more favorable City plan;
• Begin collecting group specific claims experience so that ongoing claims experience can be adjusted to actual experience;
• Partner with the collective bargaining groups to address the fundamental changes needed to keep the City’s plan of benefits financially viable;
• Partner with the School System to resume a joint purchase arrangement to achieve cost reductions; and
• Address the City’s relative lag in employee compensation directly as a compensation issue unrelated to health care benefits. Compensation data should also include pension, leave and additional benefits.

          The Baltimore Efficiency & Economy Foundation is a nonprofit, nonpartisan organization which directs research on various aspects of City management, operations, fiscal and tax policy. BEEF’s research reports are published for the benefit of City government and for public information and discussion. The name of the Baltimore Efficiency & Economy Foundation was inspired by an impressive 47-year record of Baltimore’s Governmental Commission on Efficiency & Economy which conducted research on the operations of Baltimore City government from 1928 to 1975.

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