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| B.E.E.F. Studies Rising City Health Care Benefit Costs |
.E.E.F. is directing a major research study that will identify the factors contributing to the City's above average cost of providing health care benefits and prescription drugs to its 16,000 full-time employees and 19,000 retirees. The study is funded by a $50,000 grant from the Goldseker Foundation matched by a City appropriation.
After a complete RFP process which garnered national interest, B.E.E.F. retained the Baltimore health benefits consulting firm of Bolton Offutt Donovan to conduct the study. The final report, expected in June, 2000, will be shared with the Administration, City Council and the public both in a printed report and on the B.E.E.F. web page.
The health benefits study was spurred by the alarm expressed in City Hall for the past several years about the City's spiraling costs of providing health benefits to employees and retirees. Initiated under the Schmoke Administration, the B.E.E.F. health benefits study was embraced by Mayor O'Malley when he took office. City Director of Finance Peggy Watson and Deputy Director Ed Gallagher continue to reiterate their concern about the increases in health care benefit and prescription drug costs.
In June, 1999, then Councilwoman Sheila Dixon introduced, and thirteen other City Council members co-sponsored, City Council Resolution 99-1072 calling for a report to the City Council from the Administration on the appropriateness of increasing the employees' share of health care premiums. The norm in public jurisdictions is an 85% employer contribution and a 15% employee contribution.
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City of Baltimore Health Care Benefits Data ($ - Millions)
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CHANGE FROM PRIOR YEAR |
% CHANGE FROM PRIOR YEAR |
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| Fiscal 2000 (Budget) |
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| Employee health benefit cost (w/o) drugs |
$ 65.4 |
$ 2.1 |
3.3% |
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| Retiree health benefit cost (w/o) drugs |
$ 31.7 |
$ 1.0 |
3.3% |
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| Prescription drug costs for both employees and retirees |
$ 44.9 |
$ 4.9 |
12.3% |
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Total salary budget for 16,153 (authorized full time positions)
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$537.7 |
$ 18.9 |
3.6% |
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| Fiscal 2001 (Budget) |
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| Employee health benefit cost (w/o) drugs |
$ 71.4 |
$ 6.0 |
9.2% |
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| Retiree health benefit cost (w/o) drugs |
$ 34.9 |
$ 3.2 |
10.1% |
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| Prescription drug costs for both employees and retirees |
$ 52.0 |
$ 7.1 |
15.8% |
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| Total salary budget for 15,871 (authorized full time positions) |
$ 551.9 |
$ 14.2 |
2.6% |
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| NOTES: (1) Note that the authorized fulltime position count does not mean that all of the positions are filled at any given time. (2) All health benefits including prescription drug costs are for employees and their families, not just employees. Source: Baltimore City Department of Finance
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The cost of prescription drugs was and continues to be particularly noteworthy. The City prescription drug costs increased 12 percent from FY 1999 to $44.9 million in FY 2000. In FY 2001, costs are projected to climb 15.8 percent to $52 million. Co-pays for City employees range from $2, $3 to $5 in contrast to the customary private sector $10 co-pay.
It has long been suspected that the City provides a high level of benefits to employees. Until B.E.E.F. initiated this project, no comparative study has ever been conducted. It is known, however, that Baltimore spends $4,890 per active employee on health benefits. According to a survey conducted by the U.S. Chamber of Commerce of non-manufacturing employers, the national average cost for health benefits for those employers is $3,523 per employee.
The City has historically explained its high benefit expense by stating that it compensates employees with increased benefits when funds are unavailable for ordinary wage increases. To have a true comparison of the City's benefits package, therefore, health benefit comparisons with other public jurisdictions will be evaluated in the context of overall employee compensation.
The B.E.E.F. health benefits report will recommend how the City can manage its health benefits program more efficiently to achieve cost reductions. Apart from any adjustments in benefits or co-pays that the conclusions may or may not recommend, it is expected to report that tighter controls over administration will result in the City driving down its costs. We also expect that recommendations will be made (1) to encourage or require working couples to choose the working spouse's non-City employer plan, and (2) to sharply curtain the extent to which retirees choose the City's very generous plan over their other options. Because of the high level of coverage, the City's benefits package is a plan of choice for working couples and for those who retire from City service and become employed elsewhere.
As five city unions negotiate new contracts this spring, health benefits have been a major point of discussion. The Firefighters' Union sought arbitration as its discussions with the City broke down over health care benefit costs.
In the late 1990s, the Mayor of Philadelphia, also facing budget shortfalls, successfully obtained health benefit concessions from city workers. The final Baltimore report is expected to help the O'Malley Administration address its pending budget deficit.
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