How To Make $2M In Health Costs Disappear

With union-affiliated aldermen diving into the nitty-gritty of health care costs, a change in insurance carriers could save the city a bundle — depending on answers to some key questions.

The city is looking at a likely health care savings of more than $2 million over its current plan, said Rob Smuts, the city’s chief administrative officer. The savings would come from switching health insurance carriers from Anthem to Cigna.

Aldermen Adam Marchand and Jessica Holmes officially introduced the change of plans in a submission to aldermen Monday night. Marchand asked for the item to be moved to a “first reading,” which would expedite its approval; aldermanic President Jorge Perez said he would consider the request.

Smuts pitched the change of plans at this past Wednesday night’s meeting of the Board of Aldermen’s Finance Committee. He was joined by Marchand and Holmes, who have spent the last year looking at how the city can save money on health care costs, one of the top-line items in the city budget.

The change would only affect the administration of health care for city workers, not the actual benefits that workers receive, Smuts said.

Nevertheless, Jimmy Kottage, head of the firefighters union, said he remains skeptical. So did Lou Cavaliere Jr., the head of the police union. Their unions are two of 14 collective bargaining units that would have to agree to the change.

Both men said they’re mindful of the need to save money, but will have to look at the details of the plan to see if their members could support it.

Just how it all works is a bit complicated. As aldermen prepare to dive into questions about the complex plan, here’s a self-generated Q&A explaining the basics of the situation, based on interviews with key players in the debate:

What’s the city’s current health insurance system?

The city is self-insured, which means it pays for its workers’ health care itself. The city covers medical costs for about 12,000 people, including current workers, retirees, and dependents. An insurance company doesn’t pay for those people’s health care claims; the city does. The plan includes a “stop-loss” so the city isn’t on the hook for claims of over a million dollars in extreme medical situations.

The city contracts with an insurance carrier to administer the plan. For over three decades, the city has contracted Anthem to take care of all the paperwork and negotiate prices with doctors. The carrier doesn’t determine what gets covered or co-pay amounts. That’s all determined by agreements with the city’s 14 collective bargaining units.

Sounds fine. Why change it?

Health care is one of the main cost drivers in the city budget, accounting for $64 million in general fund spending. Higher health care expenses can mean increased property taxes and less money for other important city programs. Controlling medical costs would go a long way toward keeping the city financially healthy.

OK, so how do we control medical costs?

Two aldermen have been looking at just that question. After coming into office as part of a new crop of union-affiliated aldermen, Marchand and Holmes helped create the Board of Aldermen’s Health Benefits Review Task Force, which included firefighter union head Kottage and a field rep from AFSCME.

The task force reviewed the issue and drafted a report that included a number of recommended questions that the city ask insurance carriers when it next issued a Request For Proposals (RFP) for their services. When the city later issued such an RFP, the questions were included, and Marchand and Holmes joined the committee reviewing the bids that came in. That marks the first time aldermen have been involved in that process.

That’s nice. But when do we start saving money?

I’m getting to that. The new, more aggressive RFP, along with a clear message from the city that it was prepared to go through the hassle of changing carriers, meant that the city received more bids — and more competitive bids — than in the past. One came in from Cigna, which hadn’t submitted a bid in the past because it didn’t think the city was serious about changing carriers, said Smuts (pictured).

After reviewing the bids and interviewing the bidders, the RFP committee determined the top two were from Cigna and Anthem, the current carrier. The bids are for a one-year contract, renewable annually up to five years.

The bids offer savings on ​“fixed costs” — administration fees, and the stop-loss. Anthem put in a bid that would save the city $350,000 in fixed costs per year, meaning the city would save money even by staying with Anthem. That’s a benefit of a competitive bidding process.

But the RFP committee is recommending the city go with Cigna, which offers fixed-cost savings of $850,000.

Wait, you said $2 million in savings.

Right. Fixed costs account for only about 5 percent of the total costs of health care. The rest is actually paying for doctor visits and medical procedures. That cost, since it’s not fixed, is much harder to predict. It varies according to how much health care people need: whether they’re sick or healthy or get into accidents or not.

But the cost of health care also depends on what kind of deals insurance carriers can make with health care providers. All carriers negotiate the price they will pay for each medical procedure a doctor or nurse does. Because of their size, they can negotiate prices that are usually much less than the average person would pay out of pocket. If one carrier negotiates a better deal than another carrier, it can offer a better deal to its customers.

So Cigna would charge the city less per doctor visit?

Basically, yes. Smuts said the RFP committee was able to compare the rates that each carrier would pay for a range of medical procedures over a certain period, and compared that to what the city actually paid during a period of the same length. The committee found it would have paid over $2 million less with the deal Cigna is offering.

Of course, past performance is not necessarily indicative of future results, as the saying goes. The cost of health care is still mostly determined by how much people need to use it.

Will the costs go up in the second year? Did you check with other towns that have done this?

Good questions. Board of Aldermen President Jorge Perez (pictured) asked them too. Smuts said fees will likely go up each year, but only at a rate that’s close to standard inflation.

Marchand said the RFP committee’s consultant did check with other towns. Perez asked for more — a letter, something in writing showing an example of what other towns have gone through. He was assured he will receive such a document.

But how do we know that Cigna will provide the same level of care? Maybe the savings would come through shoddy doctors …

Smuts, Marchand, and Holmes (pictured) insisted that won’t happen. They said the city is contractually obligated to provide its workers with the level of care they have now; it has to by law. The benefits will stay the same, they said.

Nevertheless, at least two union leaders shared your concern:

“They say they can guarantee it,” said Cavaliere. ​“Is it going to be line-for-line exactly the same? I highly doubt that. It doesn’t sound possible.”

“Assumptions and promises aren’t good enough,” said Kottage. ​“I want an independent third-party person to validate the numbers.”

Hmm. What happens if the unions don’t agree to the change?

East Rock Alderman Justin Elicker (pictured) asked that too.

If aldermen agree to begin the process of changing over to Cigna, 14 collective bargaining units would have to agree to switch. Smuts said units that want to stay with Anthem could do so, but that would mean less savings for the city. Also, if units don’t agree, the city could arbitrate it with them.

“I do feel confident we can demonstrate to all units there will be no change in benefits,” Smuts said.

So what’s the next step? When would this change happen?

The change proposal, introduced at Monday’s Board of Aldermen meeting, is expected to have a public hearing in front of an aldermanic committee. If it’s approved, then unions will choose whether to agree. ​“The process with unions will take as long as it takes,” Smuts said.

Aldermen seem likely to approve the proposal, which is, after all, pitched to them by two of their own, rather than just mayoral staffers.

Elicker, who’s running for mayor, said that having aldermen more involved in the process makes a big difference. If it’s just administration staff working deals out behind closed doors, aldermen are more likely to be skeptical when the staffers come out and present their recommendation.

Yeah, but what about the municipal unions? They weren’t in the room, and their members are the ones most affected.

That’s the point that Kottage made. ​“I’m extremely skeptical of the process,” he said. ​“I think the intention of the committee was tremendous but by not having any union representation on the committee, it makes us very skeptical.

Next time around, if Marchand has his way, Kottage might be in the room. He told the Finance Committee that unions should be represented on the RFP committee in the future.

Smuts said unions haven’t historically been part of the RFP process because it’s just an administrative matter that doesn’t affect actual health benefits, only how they’re delivered.

“We do want to be more collaborative,” Smuts said. Having unions on the RFP committee is a good idea, he said. It would be ​“logistically tough” since there are 14 collective bargaining units, but the city could come up with a way to make it work, he said.

Melissa Bailey contributed reporting.