In the 2012 round of contract negotiations, nearly all City employee unions and the City agreed to move from 100% funding of Employee Only health coverage to having “medically single” employees pay 10% of their premium cost, beginning January 1, 2014. Over the last several months, careful analysis by the Health Service System (HSS) and the Public Employees Committee (PEC, the coalition of City unions) has revealed that this “90/10 split” sets into motion a series of unintended consequences that will ultimately result in a less stable and more expensive health benefit structure.
In brief, the 90/10 split would encourage migration of the healthiest employees out of Blue Shield and into the cheaper Kaiser plan. The resulting higher risk pool would lead Blue Shield to raise rates, leading to further migration into Kaiser. An ongoing spiral would quickly take hold as Blue Shield became more and more expensive every year. Eventually, Kaiser would hold a near monopoly on employee coverage, with the likelihood of steep price increases each year thereafter. This has already proven true in the surrounding counties in which the overwhelming majority of employees are Kaiser enrollees.
Thus, while 90/10 would save the City approximately $8 million annually when applied to all unions based on current rates, actuaries estimate that over the next five years, the resulting structural changes would cost an additional $65 million, borne by both the City and employees.
In late May, the PEC presented this information to the Mayor’s office and the Department of Human Resources. We requested a deferral of the 90/10 implementation for a year, while alternative pricing structures could be analyzed. The City eventually agreed and proposed a different premium structure. That structure would have increased Kaiser contributions for some employees, but reduced Blue Shield premiums across all enrollment groups. While this met the goal of maintaining competition between the two plans, UAPD and the PEC found that the proposal shifted too much cost onto some Kaiser enrollees. Since that time, there have been ongoing discussions to reach a better pricing structure.
City officials have requested a meeting with all City unions for next Tuesday afternoon (July 16). It is expected they will present a more favorable premium structure. UAPD will send a detailed update on the City’s proposal next week. While we anticipate a favorable outcome, any agreement reached in the middle of our contract term would be put before the UAPD membership for a vote. No changes will be implemented unless ratified by the members.