Supporters of a proposed contract for unionized workers at the Los Angeles Department of Water and Power argue that it's a good deal for the city. Chief Legislative Analyst Gerry Miller estimates that the proposal would generate real (i.e., inflation-adjusted) savings of $4 billion over 30 years.
But one paragraph from Friday's coverage in The Times should be enough to persuade City Council members to seek a better deal with Local 18 of the International Brotherhood of Electrical Workers:
"City budget analysts acknowledged that the proposal would not change the utility's practice of paying the entire cost of health coverage for its IBEW employees," Michael Finnegan and David Zahniser reported. "By comparison, about one-fourth of the city's workforce is now paying 5% of their healthcare premium and a few employee groups are on track to pay 10% next year, according to Miller."
If council members have been paying any attention to the fiscal problems that have been plaguing all levels of government in the United States, they would know that rising healthcare costs are one of the two biggest threats over the long term. The other -- pension obligations -- may attract more headlines. But unlike pensions, healthcare costs have no upper limit. And while healthcare inflation has slowed in the wake of the last recession, many economists expect it to pick up again as the population ages and expensive new personalized therapies proliferate.
There's obviously a deep partisan divide over what to do about those costs -- witness the rancorous debate over the Affordable Care Act's cost-control provisions. Yet one thing that economists on both sides seem to agree on is that the current system of employer-provided insurance promotes excessive demand by making consumers insensitive to the cost of care. And one way to temper that demand is to make that cost clearer.
Ideally, employers would take all the money they're spending on healthcare benefits and give it to their employees as wages. The workers would then pay directly for their coverage, with the income they spend on premiums receiving the same tax exemption that employers' insurance payments now receive.
That would be a radical shift, and lawmakers showed little appetite for such a proposal when working on healthcare reform in President Obama's first term. The advantage, though, is that it would reveal to workers a huge hidden cost of health insurance, one that has been rising steadily -- and eating up the raises that they might otherwise have earned through increases in productivity. The shift would force them to face the full magnitude of premium increases, increasing their incentive to change the unhealthy behaviors that cause much of the costly chronic disease in America.
What public employers can do today is push their workers to accept more of their compensation as pay, not health benefits, so they'll be more aware of the latter's cost. The proposed DWP contract, however, goes in the opposite direction. It would forgo some pay hikes in exchange for maintaining "free" healthcare -- an accounting fiction that's harming the city and the workers alike.
In fact, according to the Local 18 website, employees enrolled in the HMO plan face no copays for many healthcare services. That sort of "first dollar" coverage is viewed as so inflationary, Obama has sought to discourage it even for senior citizens on Medicare.
The city's move in recent years to require workers to pay a portion of their premiums served more than just the short-term interest in balancing the city budget. It helped bring market forces to bear, albeit in a limited way, on the problem of out-of-control healthcare costs. The same discipline needs to be applied to all city workers.
I should note here that my colleagues on The Times' editorial board haven't taken a formal position yet on the details of the proposed contract. We weighed in again Friday, thanking Council President Herb Wesson for agreeing to hold a public hearing on the deal but lamenting the maneuvering that effectively shields the mayor and council members from accountability for its terms.
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