LYNN — The city could see a budget savings of $10.4 million this year if officials switch to the state’s group health insurance plan, according to the findings of a new report recommended to the mayor and City Council by Lynn’s state fiscal stability officer, Sean Cronin.
Cronin has said employee health insurance is one of the major factors the city needs to address in order to balance its budget. It’s one of the main contributors that landed Lynn in financial trouble several years ago as the city was purposely underfunding its employee health insurance, he said.
Although there would be a reduction in health insurance premiums with the switch, the new plan could result in increased out-of-pocket expenses, or a net increase in health care costs, for active and retired city employees who need to use their health insurance more often, according to Cronin, senior deputy commissioner of local services for the Department of Revenue, who oversees the city’s budget.
The report’s findings come as city officials are faced with a projected fiscal year 2020 budget deficit of $5 million, while tasked with negotiating about a dozen union contracts, that could result in significant increased expenses through numerous potential raises for city employees.
The city needed to borrow $14 million through legislation to balance its FY18 and FY19 budgets.
“It is critical that this report be carefully reviewed by the mayor, City Council, employees, retirees and taxpayers, as the potential savings are very significant and could play a major role in improving the city’s financial outlook,” wrote Cronin in a correspondence to Mayor Thomas M. McGee and the City Council obtained by The Item through a Freedom of Information Act request.
The report, obtained by The Item and completed by Marsh & McLennan Agency, a consultant enlisted by the city on Cronin’s recommendation, found that Lynn could see $13 million in health insurance savings if officials were to switch to a new plan, namely the commonwealth’s Group Insurance Commission (GIC).
With the city, or taxpayers, picking up about 85 percent of employee family insurance plans and about 81 percent of individual insurance plans, that would result in a budget savings of $10.4 million with the remaining $2.6 million balance representing employees’ savings, according to Cronin.
The $13 million represents a potential 22 percent savings from the city’s total health insurance cost of $60.4 million in FY19, $48 million of which was the city’s share, according to Cronin.
Lynn’s current plan for active employees is Harvard Pilgrim HMO, but if the city were to switch to the GIC’s most subscribed plan, Tufts Navigator, costs would be 17 percent less for individual plans and 25 percent less for family plans, according to the report.
The total annual for the city’s HMO family plan is $28,889 and $10,789 for individuals. With a switch, using a comparable plan, annual insurance costs for each employee is reduced to about $21,742 and $8,922 respectively, according to the report.
The split, regarding the percentage of what the city and employees pay for health insurance costs, is up to the city and unions to negotiate through collective bargaining. The city could opt to increase its share or try to shift more of the share from the taxpayers to city employees.
When the Municipal Health Insurance Reform was passed in 2011, Cronin said the legislation allowed municipalities to go into the GIC, but not many communities took advantage of potential lower rates.
When communities enter into the GIC, Cronin said employees end up netting an average savings with reduced premiums, which means their paychecks increase.
But for some employees who may have to use their health insurance more often, such as for an illness or visiting doctors often, the increase in out-of-pocket costs, such as higher co-pays, may not be offset by the reduction in premiums, meaning they would still pay more, Cronin said.
The city can try to mitigate those cases of increased health insurance costs by taking some of the projected health care savings and putting the funds into a Health Reimbursement Arrangement (HRA), an employer-funded account that helps employees pay for qualified medical expenses not covered by their health plans.
“I know these discussions are difficult,” Cronin said. “Discussions around health insurance understandably scares some people. I’m hoping this report, the magnitude of savings can be understood and negotiations could be had to see how many employees would be affected by increased out-of-pocket costs and the city could look at how to mitigate that.
“The numbers are too large to ignore. That frees up money to do other important things for the city.”
All of the city’s labor contracts have expired and there was no funding included in last year’s budget for raises. If there is a desire to increase wages in the new contracts, Cronin said, capacity must be found and health insurance savings is a way to provide some of those funds.
Currently, the city doesn’t have the ability to balance its budget, invest in its infrastructure and stay competitive by increasing employee pay to keep up with the cost of living, he said.
The GIC has facilitated long-term financial stability for numerous Massachusetts municipalities over the past decade, Cronin said, with its rates remaining well below increasing market trends.
He called the city’s current health insurance model “unsustainable,” and if left unaddressed, it “could further imperil the city’s future financial stability.”
The city’s total health insurance expenditures have risen 35 percent, or nearly $16 million since FY13. Over that same time period, the property tax levy has grown by approximately $27 million, according to Cronin.
With the city’s approximate 80 percent share of that $16 million equating to $12.5 millon, close to 50 percent of all new property tax dollars have gone toward funding growth in the city’s share of health insurance, Cronin said.
As of Wednesday, Cronin said he has not received a response to his correspondence from the mayor or City Council.
Through a spokeswoman, McGee declined comment on the report.
City Council President Darren Cyr said he had no comment as health insurance is part of collective bargaining and he was warned commenting on ongoing negotiations would be an unfair labor practice.
“While they’re in negotiations, I can’t really talk about any of the proceedings,” Cyr said. “It’s up to the mayor and his team, or the unions, to respond. I would believe both parties are looking at whatever they can do to save money wherever they can and also to be able to look at something fair.”
Sheila O’Neil, president of the Lynn Teachers Union, declined comment, saying it would be a violation of the labor law and Richard Germano, president of AFSCME Local 1736, which represents city workers, did not return phone calls seeking comment.