City ​“Bends” Health Care Curve

Mohit Agrawal saw something strange as he flipped through the latest city monthly financial report.

“The numbers look pretty good,” the budget watchdog said. ​“Am I reading this right?”

He was. And, according to city financial officials, that’s not just good luck. It’s also the result of structural changes to how the city handles health care.

That surprisingly upbeat conversation about city health care costs took place on Wednesday night during the latest monthly meeting of the independent Financial Review and Audit Commission (FRAC) on the second floor of City Hall.

What caught Agrawal’s eye in the report: Instead of going up, up, up, this fiscal year’s medical expenditures to date are basically flat in comparison to last year’s.

Agrawal, who chairs FRAC and is a Yale PhD candidate specializing in health care economics, is more accustomed to calling out structural deficits and unrealistic assumptions baked into the city budget.

But on Wednesday night, he, City Controller Daryl Jones, Acting Budget Director Michael Gormany, and the rest of the FRAC team found themselves discussing an encouraging, and potentially lasting, development in an area that haunts municipal budgets throughout the country: employee and dependent medical costs.

Gormany said that the city’s relatively moderate health care expenditures so far this year are an early indicator of new union contracts, preventive requirements, and education initiatives designed to mitigate the inevitable growth of city health care expenditures in the years ahead.

“I don’t think you’re really going to lower health care costs in any industry,” the acting budget director said, ​“but I think you can try to bend that curve and do cost avoidance savings with health care.”

Health care costs represent one of the largest and fastest growing areas of the city budget. Over the past five fiscal years, the city’s total general fund has grown by 10 percent, while the city’s general fund contribution towards employee and dependent medical benefits has grown by 27 percent, from $64.1 million to $81.7 million.

The biggest change that alders made to the mayor’s proposed Fiscal Year 2018 – 2019 budget (FY19) was taking away a $5 million increase from the Board of Education budget and putting that money instead towards the health care line item. That’s because health care costs have consistently risen by 5 to 8 percent each year over the past several years, always leaving the city scrambling to cover for a health care fund in the red.

But, according to the city’s November 2018 monthly financial report, FY19 is shaping up to be a pretty good year on the medical front. At least in comparison to last year, which, Agrawal said on Wednesday night, is pretty ​“extraordinary” for health care costs.

From the start of the fiscal year in July 2018 through the end of November 2018, the city, which is self-insured and uses Anthem to process its health care bills, paid out $48.7 million in medical claims for its roughly 12,000 covered employees and dependents. During that same five-month stretch last fiscal year, the city paid out $49.8 million in medical claims. That’s a year-over-year drop of roughly 2 percent.

Furthermore, during FY19 so far, the city has only seen two ​“large” medical claims, or claims that cost more than $500,000 a piece, whereas the city had already seen five ​“large” claims at this point in FY18.

Gormany said this slight decrease in medical expenses in part reflects just how exceptionally expensive medical costs were last year. After all, the November 2017 monthly financial report showed an increase of $5.4 million, or 12 percent, in medical claims when comparing the first five months of Fiscal Year 2017 (FY17) to the first five months of Fiscal Year 2018 (FY18).

FY18 also saw a total of 11 claims over $500,000 each by the end of the fiscal year, including five claims that totaled roughly $5.5 million by themselves. 

“So some of the numbers and some of the months weren’t really, like, true inflation numbers on the medical,” he said about last fiscal year’s health care costs, ​“because you had those particular cases that were ongoing that cost the city additional funding. But in regards to this year, we are trending in our normal percentage increase, if you look year over year.”

Agrawal asked if anything else besides last year’s small number of very expensive claims has contributed to the relatively flat year-over-year numbers this year.

“Are we just lucky?” he asked. ​“Or have their been some structural changes” to how the city pays for health care?

Gormany and Jones said the answer is both.

“If you go around the country and see other cities,” Jones said, ​“their effort is trying to bend the curve,” to minimize an inevitable annual increase to health care expenditures by finding new ways to pay for and administer health care that reduces the taxpayer’s burden and provides improved quality care to employees and dependents.

Some of the biggest recent changes that the city has made have come through new public employee union contracts.

Because of those contracts, several of which were negotiated and signed last year, city employees and their dependents must now participate in a Health Incentive Program (HIP). That program requires members to take active, preventative measures, such visiting a physician at least once a year or getting regular prostate screenings or cervical cancer screenings depending on age and gender, as a means of catching potentially debilitating and costly diseases early on.

Jones and Gormany said that the city will likely start seeing the financial benefits of the HIP requirement next fiscal year, as current employees and dependents have a roughly one-year grace period between when the latest contracts were signed and when they have to be in compliance with the program.

One contract change that they do see bearing financial fruit, however, is the addition of high-deductible, Health Savings Account (HSA) plans, which require higher employee contributions towards medical claims but which can be less expensive, and more appealing for younger, healthier employees. Jones said that the city has already seen quite a few city employees switch over to the HSAs, though he did not have an exact number on hand for how many have taken up the new health care option.

Jones also said that the city is already seeing the benefit of the higher Other Post-Employment Benefit (OPEB) contributions it required of employees in the latest signed contracts. Jones said the city currently has an OPEB fund of around $3 million, but that that should grow to around $14 or $15 million within the next five years, thanks to mandated increased employee contributions. Those contributions should also help shore up the city’s medical benefits line item.

Jones said that the city has also refreshed its communication to covered employees and dependents about underutilized, preventative health care services already offered by the city, including a wellness program run by Yale-New Haven Health and access to fitness coaches who provide advice on diet and exercise.

“It’s not just a New Haven problem,” Gormany said about persistently rising health care costs. ​“It’s a problem everywhere, in public and private sectors.” But, at least for one monthly financial report, that problem seems to be holding steady.

Jones also told FRAC that he had no updates on the Health Care Task Force, which the Board of Alders ordered to be created back in July with the adoption of the FY19 budget, but which has yet to be formed.

Earlier this month, Westville Alder Adam Marchand, who is the alder in charge of the to-be task force, said he had been waiting for the teacher’s union election to shake out before he decided on which public employee union representative to invite to be a member of the committee. He said he hopes to have the task force formed before the aldermanic budget review process begins in full in March.

$8.7M Projected Deficit For BOE

City officials and FRAC members were decidedly less enthusiastic about the Board of Education (BOE) budget. Gormany said the BOE is still projecting an end-of-fiscal-year deficit of $8.7 million.

“How do they get away with just taking more money?” budget watchdog Gary Doyens asked at Wednesday night’s meeting. ​“How is that possible?”

Gormany said that a big part of the problem is that the state has flat-funded the Education Cost Sharing (ECS) formula over the past decade, even though New Haven’s school system has grown significantly during that time.

State aid, or lack thereof, isn’t the only hurdle that BOE budget makers are facing right now. With less than six months to go in the fiscal year and a nearly $9 million deficit projected, the New Haven Public Schools (NHPS) central office is operating without a chief operating officer and without a chief financial officer.

“I agree with you, Gary,” Gormany said. ​“I really do.”

“We’re gonna keep putting pressure on them,” Jones said, to try to close that deficit before the year is up.