Public Sector Health Plans Are Costly for Taxpayers

In Iowa, state law (Chapter 20) provides that public salaries, health insurance benefits and various work rules be set through collective bargaining agreements negotiated between employers and employee representatives (unions), where they exist.

Most of the cities in central Iowa have at least one employee organization, and larger cities such as Des Moines have up to nine different organizations. Each one negotiates a different set of salary, health and work rule provisions for contracts that extend from one to five years.

Though this process, in place since the 1970’s, benefits have gradually expanded. Once benefit provisions are in place, they cannot be changed or removed except explicitly through a trade for salary or other benefits deemed to be of equal or greater value. Health care inflation has fallen almost entirely on the employer (taxpayer) because employees typically pay such a low share of the premium charge.

What do these plans look like today? How do they compare with yours? How do they compare with the plans available to the general public via the new health insurance exchange?

The Taxpayers Association of Central Iowa surveyed local governments to acquire some basic information about the most popular health plan in each jurisdiction and here’s what it shows:

There have been some inroads in terms of employees paying a share of the premium cost. These shares are still very small (from 2.5 percent in Des Moines for a single plan to 11 percent in West Des Moines for a family plan), but at least they are not zero. Employees subscribing to the most popular plan in state government still contribute nothing for their premium (nor for services, for that matter).

For plans purchased on the insurance exchange, the federal government subsidizes premium payments based on income. All purchasers pay something, and some pay 100 percent.

As the table shows, the biggest difference between a public employer plan and a health exchange plan has to do with what employees pay when they actually use services. Health exchange plans try to encourage members to be conscious of the cost of services. They require subscribers to pay 100 percent of the cost of nearly everything, up to the deductible. The deductibles are set deliberately high — $3,750 for a single plan and $7,500 for a family plan in our example. Public employee plans, on the other hand, which already cost employees very little in premium, tend to have extremely low co-pays and deductibles. So employees have minimal exposure to the actual cost of services, and minimal incentive to stay healthy.

Of course, this aspect of the Affordable Care Act intentionally aims to make people more attentive to their health and health care, which is by and large a good thing. On the other hand, Iowa’s collective bargaining laws are set up to protect the status quo. Employee organizations may think they have done a great service for their members by keeping health care essentially free. But when the world changes, and public employees are locked in an alternate universe, does anyone really win?

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