Fiscal Year 2019 Budget

Beginning July 1, 2018 and ending June 30, 2019

Last updated: 7/1/18

Health benefits

The City continues to benefit from health care cost reforms achieved by the Walsh Administration in the 2015 - 2020 Public Employee Committee (PEC) Agreement, which is projected to save an additional $50 million over five years.

Based on savings included in this agreement, Boston will realize $11.6 million in avoided health care costs in FY19, $1.5 million of which are related to FY19 specific changes.

Despite this success, health care costs have continued to increase, since FY16, at a rate higher than the overall budget, consistent with trends in the broader Massachusetts market.

View the Health Insurance appropriation budget

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Glossary of Terms

View PDFs of the budget book

Contact the Budget Office:

budget@boston.gov

FY19 Budget

The FY19 budget includes $405 million for all health benefit related costs for the City’s employees and retirees, comprising 12.3% of total City expenditures – compared to 7.8% in 2001.

$42.25 million of these costs for future OPEB liabilities are discussed in more detail in the following section.
$363 million for current health, dental and life premiums and employer Medicare payroll taxes are addressed below.

Growing costs

As shown in Figure 7, annual costs for health, dental and life insurance and Medicare taxes grew from $132 million in FY01 to $363 million in FY19, an increase of $231 million or 176%. Over the same period, all other City costs increased 89%.

Figure 7 shows three distinct periods of annual cost increases.

Steep increases averaged 15% per year from FY01 – FY08.
Between FY09 – FY15 these cost increases dropped to an average increase of 1% per year due to multiple factors. These factors include: state health reform legislation; cooperative efforts by the City and its unions to reduce both the City’s share of costs and total costs; and lower nationwide health care cost trends.
Beginning in FY16, higher health care claims costs led to higher premium increases, which were mitigated by PEC agreement savings, resulting in an average cost increase of 5.6%.

Medicare

Municipal health care reform legislation, passed by the State legislature in 2011 provided municipalities more freedom in health plan design, and also mandated that all Medicare-eligible municipal retirees enroll in Medicare Part B and a City sponsored Medicare supplement plan.

As a direct result of mandated Medicare enrollment, approximately 5,500 additional City retirees and their spouses have enrolled in Medicare supplement plans.

City savings

Benefits for these plans are comparable to non-Medicare plans but costs are lower due to Medicare reimbursements. Over 70% of retirees and spouses are now enrolled in Medicare plans, compared to just 37% prior to the legislation. City savings from this mandate, beginning in FY13, have totaled approximately $20 million annually – a major contributor to the total cost decrease in FY13.

Learn More About City Savings

Medicare taxes

City retirees and their beneficiaries are eligible for Medicare through payment of Medicare payroll taxes during their working career.Medicare taxes are paid for all City employees who were hired after March 1986. City Medicare taxes, totaling $19.3 million in the FY18 budget, have increased an average 12.2% annually since FY01. This growth is due to increases in total payroll and also the increasing percentage of total employees who were hired after March 1986 and are impacted by the tax. Also, more Medicare eligible employees are now beginning to retire, which will continue to increase the percentage of all retirees who will be enrolling into Medicare plans.

Health Care Costs
Health, Life, Dental, Medicare Tax

(dollars in millions)

Fiscal Year	Total Cost	$ Change	% Change
FY08	270.6	20.9	8.4%
FY09	278.8	8.1	3.0%
FY10	296.1	17.3	6.2%
FY11	308.0	11.9	4.0%
FY12	318.9	10.9	3.5%
FY13	293.3	-25.5	-8.0%
FY14	304.4	11.1	3.8%
FY15	296.5	-7.9	-2.6%
FY16	312.2	15.7	5.1%
FY17	328.1	15.9	5.1%
FY18*	352.4	24.3	7.4%
FY19*	362.9	10.5	3.0%
*Budget estimates

Healthplan Subscribers Feb 2018

Health Plan	Active	Retiree	Total
Indemnity	819	911	1,730
HMO	14,293	2,511	16,804
Medicare	1	11,369	11,370
Total	15,113	14,791	29,904

City - Union Partnership

Assisted by 2011 Municipal Health Care Reform, the City adopted MGL Chapter 32B S.19 and began working closely with its thirty six unions, as represented through the Public Employee Committee (PEC), in making health care changes.

Reduced City share

Through the City and PEC’s two coalition bargaining agreements signed in 2011 and 2015, City employees and retirees are now paying a higher share of total health care costs through increased premium share and higher co-pays for office visits and pharmaceutical costs. The City’s share of total costs for its most popular non-Medicare health plan reduced from approximately 82% in FY11 to 77% in FY19. This is still higher than the estimated 68% employer share for a state employee enrolled in the Group Insurance Commission (GIC).

Today, the City’s total annual health care costs are estimated to be over $27 million lower than they would have been if not for these changes.

In FY15, the City and the PEC entered into their second agreement, which is projected to reduce projected costs by approximately $50 million over five years. This most recent agreement is unique because it includes not only a continued increase in member cost share, but also multiple other approaches to containing total costs for both the City and members, including:

Competitive bidding and refinement of the City’s health plan options

After the elimination of a costly indemnity plan in FY12 saving several million dollars annually, non-Medicare health plan options were further reduced in FY16 to three plans: one PPO (Indemnity) with an open provider network and two HMO managed plans with a local provider network. Savings of over $1 million dollars per year in administrative fees were realized from this change which is shared by both employees and the City. Also, effective July 1, 2017 the City’s most expensive Medicare Plan, Master Medical, was be closed to new enrollment and will be replaced with an alternative BCBS Medicare product.

Expanding self-insurance

The FY15 PEC agreement continued to prioritize funding of health care costs through self-insurance. Prior to FY13, the City self-insured 20% of these costs, which increased to 92% in FY13, saving $12 million per year. In FY19, 99% of the City’s health care costs will be self-insured, saving an additional $1 million.

More cost effective prescription drug

Within the current agreement, the City and the PEC began analyzing options for more cost effective management of the City’s prescription benefits, which now total roughly $100 million per year for all plans. A lower cost Medicare prescription drug product will be included in the replacement plan for BCBS Master Medical, which is projected to save the City $1.4 million per year. The City and PEC will also continue to analyze options for carving out prescription drug management through a separate contract, as well as rebidding of the City’s six Medicare plans.

Expanded wellness program

The City, through the agreement, will annually contribute $75,000 toward wellness programs, managed through a sub-committee of the PEC. In 2018, a citywide digital platform was established through which city employees and family members can access information about fitness and nutrition programs, and participate in wellness challenges.