City of Boston and Unions Reach Agreement to Contain Health Care Costs

Today, Mayor Martin J. Walsh announced that City of Boston leadership and the Public Employee Committee (PEC) have signed an agreement to further limit the growth of employee and retiree health care costs that builds on the success of the previous PEC agreement. The agreement is expected to achieve approximately $45 million in new savings over five years from additional changes to copayments and premium splits. It will also consolidate and modify existing non-Medicare and Medicare plan options and avoid potential costs associated with the Affordable Care Act Excise Tax. The agreement also extends the City’s and PEC’s ability to negotiate health insurance with the unions that represent the City’s workforce collectively until 2020.

“City employees deserve competitive health care benefits, as they keep Boston running smoothly and ensure that constituents are getting the services they need,” said Mayor Walsh. “This agreement strikes a balance between cost savings for taxpayers, and access to the best employee health benefit options.”

Under the agreement, the City and PEC will work together to issue a Request for Proposals (RFP) to consolidate and standardize the Medicare and non-Medicare plans offered by the City. Employees and non-Medicare retirees will now have access to three non-Medicare plans, as opposed to six under previous agreements, and Medicare retirees will have access to three Medicare Supplement plans. These changes are expected to reduce the costs of administering the City’s health insurance plans and to encourage vendors to offer the most competitive pricing, all while preserving meaningful choice in coverage options for members.

As a way to further contain costs, the City will now offer a Value HMO plan designed to generate cost savings through a limited network, deeper provider discounts, and/or alternative payment arrangements. Recognizing the growing costs of prescription drugs, the City and PEC will issue an RFP to explore the option of carving out Prescription Drug benefits to promote transparency and to lower costs through competitive pricing terms rather than restricted coverage.

The new agreement is responsive to impacts of the Affordable Care Act. For non-Medicare plans, the City and PEC worked together to make plan design changes and introduce an out-of-pocket maximum lower than the Affordable Care Act limit. These measures will reduce potential impact of the excise tax through increased employee co-pays, but still protect employees from financial risk caused by major illness or injury. In addition, if a health plan is at risk of hitting the excise tax threshold, the City and PEC have agreed to make further plan design changes to avoid triggering the excise tax.

The agreement accepts the extension of MGL Chapter 32B Section 19 through June 30, 2020, which allows the City to negotiate health insurance with the unions collectively and to continue building on the cooperative relationship that developed by working closely with the unions under the previous PEC agreement.