Local Governments’ and School Districts’ New-Found Flexibility with Health Plans
The Budget Repair Bill (BRB) provides local governments and school districts with never before seen flexibility in designing employee benefit plans without the need to obtain union consent to design modifications. Rather than being constrained by concepts of “equivalence” and “substantial equivalence” of health care benefits as is often found in collective bargaining agreements, local governments and school districts are now able to modify current plans to address budgetary concerns. The following is a summary of what the BRB allows as it relates to health insurance benefit plans for local governments and school districts.
For Participants in the State Plan. For local governments and school districts who participate in the state health plan, the BRB prohibits local governments and school districts from paying more than 88% of the average premium cost of plans offered in any tier with the lowest premium cost (1st tier premium). The effective date of this section is January 1, 2012. However, public safety employees are exempted from this requirement in that they may continue to bargain with the local government to pay more than 88%. See BRB, Section 101. Local governments and school districts should note that the state plan incorporates rules regarding deductibles and co-pays that limit a participating employer’s ability to implement cost-sharing measures. Local governments and school districts participating in these plans should review the plan rules prior to implementing plan design changes.
For Employers Providing Insurance Through a Vehicle Other than the State Plan. For local governments and school districts that do not participate in the state health plan, the BRB provides flexibility to make plan design changes to health insurance plans without the need to bargain with represented employees. Prior to the effective date of the BRB, local governments and school districts were required to bargain changes to health insurance plans, which made it extremely difficult to change insurance carriers or to implement health care plan design changes to achieve savings. In the After Budget Repair Bill (ABRB) world, health insurance is a prohibited subject of bargaining. See BRB, Section 223. Therefore, local governments and school districts will be able to unilaterally implement plan design changes to health insurance plans, which could result in significant savings, including:
• Additional premium contributions by employees
• Implementing or enhancing employee deductibles
• Implementing or enhancing employee co-pays for services and drugs
• Requiring employee co-insurance
• Implementing high deductible plans either with or without health reimbursement accounts (HRAs)
• Moving to joint self-funded health insurance programs
• Implementing multi-tiered systems for prescription drugs
• Changing the identity of the insurance carrier
• Self-funding or partially self-funding insurance benefits
• Modifying provider networks and drug formularies
At the same time that local governments and school districts seek to reduce costs to reflect budgetary concerns, local government employers will have to be mindful of remaining competitive in recruiting and maintaining quality employees. Employee benefits, such as health insurance, often weigh heavily in an employee’s decision to accept a position or remain with an employer. As such, the ability of employers to make changes may be tempered by market concerns.
An employer’s ability to achieve cost savings will also be tempered by existing state and federal legislation governing health insurance. State and federal legislation incorporates many mandated coverages and other requirements related to eligibility, coverage for preexisting conditions and lifetime limits which ultimately determine the base cost of health care benefit plans, including plans offered on a self-insured and joint self-insured basis.
Before making immediate changes to your health plan, we recommend contacting your health insurance provider or agent and review all of the design options available. Local governments and school districts should carefully consider which design changes best fit the needs of the employer and the employees.