Comptroller: Cost Of Health Benefits Overwhelming Taxpayers

The cost of healthcare for Nassau County employees and retirees is so high and has grown so fast that it threatens to overwhelm the county's budget, according to a new report issued in July by the Comptroller's Audit Advisory Committee to Nassau County Comptroller Howard Weitzman.

In the last five years, the county's healthcare costs for its employees and retirees has increased by 60 percent, from $151 million to $242 million per year. The report outlines a number of opportunities to bring the growth in costs under control.

"As a county we simply have got to take action to reduce the cost of healthcare for employees and retirees before health benefit costs overwhelm our budget and county taxpayers," Comptroller Weitzman said.

"We are already spending nearly a quarter of a billion dollars per year on health benefits," Comptroller Weitzman said. "When we factor in other health-related expenses for employees and retirees, our total cost for healthcare in 2007 will nearly reach $300 million. Put another way, that amounts to 10 percent of the county's budget and an amazing 32 percent of what residents pay in property taxes. If we assume, conservatively, that healthcare costs increase 8 percent annually, the percentage of current property taxes required to fund employee and retiree healthcare will increase to 39 percent over the next three years.

"In order to arrest this runaway train, the Comptroller's Audit Advisory Committee has produced a report, updating our previous white paper on health benefits, that offers a menu of suggestions for restraining the growth in these costs. Although the Comptroller's Office does not have the ability to institute changes to the county's health policy, we offer this excellent report to the administration and the Legislature to assist them in framing labor agreements and legislation on health benefits, and to begin the hard work of developing a consensus for change. I believe this can be done, while continuing to ensure that our employees and retirees have access to high quality, affordable healthcare."

The report, unveiled at a Mineola news conference July 19, was prepared for the Comptroller's Office by Lee Launer, an actuary and a member of the Comptroller's Audit Advisory Committee, a committee of independent experts from the community formed by the Comptroller in 2003 to provide the county with outside financial advice and oversight.

"If over the next three years health care costs could be held to just 4 percent per year, instead of the projected 8 percent, it would generate cumulative savings of $62.7 million," Mr. Launer said.

The report identifies various opportunities to reduce costs without sacrificing access to high quality healthcare.

"This analysis does not favor any one of these solutions over the others," Mr. Launer said. "Rather, it presents a range of cost-saving opportunities, many of which would be subject to negotiations with the county's labor unions."

Among the options identified in the report are:

* Participant Contributions: The vast majority of county employees and retirees do not contribute to the cost of their health insurance. This is in marked contrast to New York State's employees and those of many other municipalities and school districts on Long Island, as well as most private-sector employers. The savings from contributions would depend on who is covered and at what rate. Between 2008 - 2010 the county could potentially save an amount that ranges from $26 million to $129 million.

Changes would have to be negotiated in collective bargaining for the vast majority of county employees and retirees. Consequently, the total budgetary savings would probably be lower, as part of a package of compensating changes in salaries and benefits, with smaller savings in the early years but increasingly significant savings in future years.

* Changes to the Benefit Plan: If the county offered the Empire Plan's Core Plan as its basic benefits package and allowed participants to pay the cost difference to enroll in the "Core Plus" Plan (presently offered at no charge to Nassau unionized employees and retirees), the county would save $90 million over the period 2008-2010. New York City offers its employees a similar option. The difference between the two plans is that Core Plus offers more extensive out-of-network coverage and greater benefits, especially in the area of substance abuse and mental health.

* Vesting Changes: The county could increase the number of years required for new employees to be eligible for retiree health benefits. New York State and many municipalities within the state require employees to have at least 10 years of public service before being eligible to retire with fully paid health benefits. But, for all employees except CSEA members, Nassau County requires only five years of public service. Former employees of the county could also be required to draw on pension benefits before becoming eligible for the county's retirement health benefits. These changes would produce relatively small savings over the near term, but would rationalize the county's health benefit program.

* Complete Elimination of Duplication of Benefits: Since the Comptroller first identified the problem in his 2003 white paper on health benefits, the county has taken steps to eliminate the wasteful practice of offering two separate family health benefit packages to employees and retirees when both spouses or partners work for (or are retired from) the county. The Legislature unanimously eliminated these duplicate benefits for non-union ordinance employees in 2006, saving over $276,000 in the first year. The recent PBA award also eliminated this practice, which will save over $900,000 in 2008 when fully implemented. If duplicate coverage is completely eliminated as collective bargaining agreements are negotiated, county taxpayers will save over $15.7 million during 2008-2010.

* Wellness Programs: Encouraging employees to live healthier lifestyles would not only improve morale and productivity, but would reduce healthcare costs, sickness, absences, worker's compensation claims, and other health-related costs. The report estimates such programs could generate more than $4 million of savings over the three-year period. County Executive Suozzi has announced his commitment to a Healthy Nassau program, including employee wellness. An expanded wellness program could include the following: voluntary health assessment of employees and retirees; educational programs; participatory wellness programs; nutrition-related education; specific disease management programs; benefits-related changes; and communication and advocacy initiatives.

The issue of the county's healthcare costs has come into sharper relief recently as the county, along with other municipalities around the nation, prepares to meet recently upgraded government accounting standards. The new standard, known as GASB-45, requires state and local governments to account for, and report annually on, liability for future healthcare benefits. In compliance with the new standard, Nassau County will report on its liability for so-called "Other Post-Employment Benefits" (i.e., other than pension), in its annual financial report for 2007. The liability is currently estimated to be in the range of $3 to $4 billion.

The Audit Committee's full report may be read or downloaded at the Comptroller's Web site, http://www.nassaucountyny.gov/agencies/comptroller/index.html.